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Why The House Sector Leads The Whole Economy: the Importance of Collateral Constraints and News Shocks

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  • Yu Ren
  • Yufei Yuan

Abstract

This paper establishes a dynamic stochastic partial equilibrium model for explaining residential investment dynamics in the United States, focusing on the distinctive cyclical features of residential investment in that it leads the whole economy. This paper is different from the existing literature in that it adds three new features to the model: news shocks, collateral constraints and agent heterogeneity. The partial equilibrium analysis where interest rates are exogenously fixed shows that these assumptions are essential to generating the dynamic pattern in which residential investment leads consumption and the Gross Domestic Product (GDP).

Suggested Citation

  • Yu Ren & Yufei Yuan, 2013. "Why The House Sector Leads The Whole Economy: the Importance of Collateral Constraints and News Shocks," Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    • Handle: RePEc:wyi:wpaper:002030
    as

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    File URL: http://research.soe.xmu.edu.cn/repec/upload/20101121446267055475115776.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    news shocks; heterogeneous agents; house sector; collateral constraints; aggregate uncertainty;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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