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Asset pricing and housing supply in a production economy

  • Jaccard, Ivan

We develop a representative agent model of a production economy in order to explain the joint dynamics of house prices and equity returns. In a model generating costly business cycle fluctuations, we find that restrictions on housing supply have important implications for asset pricing. Together with habit formation in the composite of consumption and leisure, building restrictions provide an explanation for the high volatility of house prices and contribute to the resolution of asset pricing puzzles. JEL Classification: E2, E3, G1

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File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1454.pdf
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Paper provided by European Central Bank in its series Working Paper Series with number 1454.

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Date of creation: Jul 2012
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Handle: RePEc:ecb:ecbwps:20121454
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  1. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
  2. Charles Ka-Yui Leung, 2004. "Macroeconomics and Housing: A Review of the Literature," Departmental Working Papers _164, Chinese University of Hong Kong, Department of Economics.
  3. University of Chicago & Jose L. Fillat, 2008. "Housing as a Measure for the Long Run Risk in Asset Pricing," 2008 Meeting Papers 483, Society for Economic Dynamics.
  4. Jaccard, Ivan, 2010. "Asset pricing, habit memory, and the labor market," Working Paper Series 1163, European Central Bank.
  5. Morris A. Davis & Jonathan Heathcote, 2005. "Housing And The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 751-784, 08.
  6. Fatih Guvenen, 2009. "A Parsimonious Macroeconomic Model for Asset Pricing," Econometrica, Econometric Society, vol. 77(6), pages 1711-1750, November.
  7. Francois Gourio, 2012. "Disaster Risk and Business Cycles," American Economic Review, American Economic Association, vol. 102(6), pages 2734-66, October.
  8. Quigley, John M. & Raphael, Steven, 2006. "Regulation and the High Cost of Housing in California," Berkeley Program on Housing and Urban Policy, Working Paper Series qt3hh7s35m, Berkeley Program on Housing and Urban Policy.
  9. Jin, Yi & Zeng, Zhixiong, 2004. "Residential investment and house prices in a multi-sector monetary business cycle model," Journal of Housing Economics, Elsevier, vol. 13(4), pages 268-286, December.
  10. Robert F. Martin & Don Schlagenhauf & Carlos Garriga, 2010. "Housing Boom and Bust Cycles," 2010 Meeting Papers 1080, Society for Economic Dynamics.
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