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Housing market dynamics and welfare

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  • Büyükkarabacak, Berrak
  • Mykhaylova, Olena

Abstract

We augment a closed-economy DSGE model with collateral constraints tied to real estate values by incorporating the time-to-build phenomenon in the housing construction sector. Adding construction sector delays significantly improves business cycle properties of the model relative to the versions with no time-to-build delays or with permanently fixed housing stock. We also find that in the presence of construction lags adding housing prices to the central bank policy function increases aggregate welfare in the economy by up to 0.3 percent of consumption. This result is robust to several specifications of the Taylor rule and to changes in key parameter values.

Suggested Citation

  • Büyükkarabacak, Berrak & Mykhaylova, Olena, 2010. "Housing market dynamics and welfare," MPRA Paper 23322, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:23322
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    References listed on IDEAS

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    Cited by:

    1. Gary Wai Chung Wong & Lok Sang Ho, 2017. "Policy-Driven Housing Cycle: The Hong Kong Case of Supply Intervention," International Real Estate Review, Global Social Science Institute, vol. 20(3), pages 375-396.

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    More about this item

    Keywords

    Housing prices; housing construction; time-to-build; welfare.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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