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Productivity shocks and housing market inflations in new Keynesian models

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  • Ko, Jun-Hyung

Abstract

Econometric evidence suggests the existence of two dynamics in the postwar U.S. housing market: (i) housing rental and purchase prices co-move positively in response to productivity shocks, and (ii) the purchase price exhibits much larger volatile movements than the rental price in response to the shocks. A standard New Keynesian model with nominal rigidity in the production sector is inconsistent with these facts. We incorporate a rental market into an otherwise standard New Keynesian model with durables and show that nominal rigidity in the rental market contributes to our empirical findings.

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  • Ko, Jun-Hyung, 2011. "Productivity shocks and housing market inflations in new Keynesian models," MPRA Paper 33848, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:33848
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    References listed on IDEAS

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    8. Ko, Jun-Hyung, 2011. "Optimal monetary policy with durable services: user cost versus purchase price," MPRA Paper 34147, University Library of Munich, Germany.
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    1. Ko, Jun-Hyung, 2011. "Optimal monetary policy with durable services: user cost versus purchase price," MPRA Paper 34147, University Library of Munich, Germany.

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    More about this item

    Keywords

    Productivity shock; price-rent ratio; housing prices;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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