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Credit constraints, inelastic supply, and the housing boom

  • Yongqiang Chu

    (University of South Carolina)

In this paper, I develop a dynamic general equilibrium model to study the sensitivity of house price changes with respect to credit constraints. I find that house prices are sensitive to changes of the down payment requirements if owner-occupied houses and rental houses are inelastically supplied. I then use the model to evaluate the housing boom during the 1995-2005 time period. I find that, under the assumption that owner-occupied housing and rental housing cannot be converted to each other, the increase in real household income and the decline in down payment requirements can explain a large fraction of the observed house price and price-rent ratio changes during the 1995-2005 time period. However, the model fails to match the interest rate changes during the 1995-2005 period. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2013.06.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 17 (2014)
Issue (Month): 1 (January)
Pages: 52-69

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Handle: RePEc:red:issued:11-134
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