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Modelling Household's Savings and Dwellings Investment - a Portfolio Choice Approach

Author

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  • Gábor Vadas

    (Magyar Nemzeti Bank)

Abstract

One important characteristic of dwellings is that housing can be regarded as an investment or asset. Our paper focuses on this function of dwellings and develops a stochastic portfolio choice model for the housing market, which is easy to incorporate into medium and large-scale macro models. Theoretical results suggest that house prices move in line with households’ income, although house prices have a higher variance than income does. Another important implication of the model is that the portfolio share of housing investment depends on the excess return, defined as the difference between return on housing and financial investment and the variance of excess return describing the riskiness of an asset. Our intention is to test these theoretical implications of the model on several countries, however we only test on UK data, due to the data availability. In this case, empirical results strengthen the model framework.

Suggested Citation

  • Gábor Vadas, 2003. "Modelling Household's Savings and Dwellings Investment - a Portfolio Choice Approach," MNB Working Papers 2003/6, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2003/6
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    Cited by:

    1. Gergely Kiss & Gábor Vadas, 2005. "The Role of the Housing Market in Monetary Transmission," MNB Background Studies (discontinued) 2005/3, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Vadas, Gábor & Kiss, Gergely, 2006. "A lakáspiac szerepe a monetáris transzmisszióban [The role of the housing market in monetary transmission]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 408-427.

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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