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Risk Shocks and Housing Markets

Author

Listed:
  • Dorofeenko, Victor

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

  • Lee, Gabriel S.

    (IREBS, University of Regensburg, Regensburg, Germany, and Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

  • Salyer, Kevin D.

    (Department of Economics, University of California, Davis, USA)

Abstract

This paper analyzes the role of uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production. The analysis demonstrates that risk shocks to the housing production sector are a quantitatively important impulse mechanism for the business cycle. Also, we demonstrate that bankruptcy costs act as an endogenous markup factor in housing prices; as a consequence, the volatility of housing prices is greater than that of output, as observed in the data. The model can also account for the observed countercyclical behavior of risk premia on loans to the housing sector.

Suggested Citation

  • Dorofeenko, Victor & Lee, Gabriel S. & Salyer, Kevin D., 2010. "Risk Shocks and Housing Markets," Economics Series 249, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:249
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    File URL: https://irihs.ihs.ac.at/id/eprint/1973
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    Cited by:

    1. Viktor Dorofeenko & Gabriel S. Lee & Kevin D. Salyer, 2011. "Rationale Erklärungen für Immobilienpreis‐Bubbles: Die Auswirkungen von Risikoschocks auf die Wohnimmobilienpreisvolatilität und die Volatilität von Investitionen in Wohnimmobilien," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(2), pages 151-169, May.
    2. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.

    More about this item

    Keywords

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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