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Asset pricing and housing supply in a production economy

Listed author(s):
  • 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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Paper provided by European Central Bank in its series Working Paper Series with number 1454.

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Date of creation: Jul 2012
Handle: RePEc:ecb:ecbwps:20121454
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