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Winners and Losers in House Markets

  • Nobuhiro Kiyotaki

    ()

    (Princeton University)

  • Alexander Michaelides

    ()

    (Central Bank of Cyprus and London School of Economics)

  • Kalin Nikolov

    ()

    (Bank of England and London School of Economics)

This paper is a quantitatively-oriented theoretical study of the interaction between housing prices, aggregate production, and household behavior over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial real estates. We find that, in an economy where the share of land in the value of real estates is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing a large redistribution between net buyers and net sellers of houses. Changing financing constraints, however, has limited effects on housing prices.

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File URL: http://www.centralbank.gov.cy/media/pdf/NPWPE_No5_072010.pdf
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Paper provided by Central Bank of Cyprus in its series Working Papers with number 2010-5.

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Length: 57 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:cyb:wpaper:2010-5
Contact details of provider: Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1

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  1. Hanno Lustig, 2001. "The Market Price of Aggregate Risk and the Wealth Distribution," Finance 0111004, EconWPA, revised 16 Nov 2001.
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  3. repec:att:wimass:9722 is not listed on IDEAS
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  9. Matteo Iacoviello, 2004. "Consumption, House Prices and Collateral Constraints: a Structural Econometric Analysis," Boston College Working Papers in Economics 589, Boston College Department of Economics, revised 13 Sep 2004.
  10. Sven Rady & François Ortalo-Magné, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CESifo Working Paper Series 470, CESifo Group Munich.
  11. Markus K. Brunnermeier & Christian Julliard, 2006. "Money illusion and housing frenzies," LSE Research Online Documents on Economics 4806, London School of Economics and Political Science, LSE Library.
  12. Morris A. Davis & Francois Ortalo-Magne, 2011. "Household Expenditures, Wages, Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 248-261, April.
  13. Pedro Silos, 2005. "Housing, portfolio choice, and the macroeconomy," Working Paper 2005-21, Federal Reserve Bank of Atlanta.
  14. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  15. Davis, Morris A. & Palumbo, Michael G., 2008. "The price of residential land in large US cities," Journal of Urban Economics, Elsevier, vol. 63(1), pages 352-384, January.
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  17. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
  18. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 763-789, May.
  19. Jonathan Heathcote, 2003. "Housing and the Business Cycle," Working Papers gueconwpa~03-03-21, Georgetown University, Department of Economics.
  20. Antonia Díaz & María José Luengo-Prado, 2010. "The Wealth Distribution With Durable Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 143-170, 02.
  21. Del Negro, Marco & Otrok, Christopher, 2007. "99 Luftballons: Monetary policy and the house price boom across U.S. states," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1962-1985, October.
  22. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 818-857, August.
  23. V. Sanchez-Marcos & J.V.Rios-Rull, 2005. "Aggregate Shocks and the Volatility of House Prices," 2005 Meeting Papers 648, Society for Economic Dynamics.
  24. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
  25. Andrew Haughwout & Robert P. Inman, 2000. "Fiscal Policies in Open Cities with Firms and Households," NBER Working Papers 7823, National Bureau of Economic Research, Inc.
  26. Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Booms and busts: consumption, house prices and expectations," IFS Working Papers W05/24, Institute for Fiscal Studies.
  27. Morris A. Davis & Andreas Lehnert & Robert F. Martin, 2008. "The Rent-Price Ratio For The Aggregate Stock Of Owner-Occupied Housing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(2), pages 279-284, 06.
  28. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  29. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
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