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Housing Market Dynamics: Any News?

  • Sandra Gomes
  • Caterina Mendicino

This paper quantifies the importance of news shocks for housing market fluctuations. To this purpose, we extend Iacoviello and Neri (2010)'s model of the housing market to include news shocks and estimate it using Bayesian methods and U.S. data. We find that news shocks: (1) account for a sizable fraction of the variability in house prices and other macroeconomic variables over the business cycle and (2) significantly contributed to booms and busts episodes in house prices over the last three decades. By linking news shocks to agents' expectations, we find that house price growth was positively related to inflation expectations during the boom of the late 1970's while it was negatively related to interest rate expectations during the housing boom that peaked in the mid-2000's. JEL Classification: C50, E32, E44.

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File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp232012.pdf
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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2012/23.

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Date of creation: Jul 2012
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Handle: RePEc:ise:isegwp:wp232012
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Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL

Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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