The macroeconomic effects of housing wealth, housing finance, and limited risk sharing in general equilibrium

Jack Favilukis, Sydney Ludvigson, Stijn Van Nieuwerburgh

    Research output: Contribution to journalArticle


    This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boomin house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium. Third, low interest rates cannot explain high home values.

    Original languageEnglish (US)
    Pages (from-to)140-223
    Number of pages84
    JournalJournal of Political Economy
    Issue number1
    Publication statusPublished - Feb 1 2017


    ASJC Scopus subject areas

    • Economics and Econometrics

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