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

    Abstract

    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
    Volume125
    Issue number1
    DOIs
    StatePublished - Feb 1 2017

    Fingerprint

    Risk sharing
    General equilibrium
    Housing finance
    Macroeconomic impacts
    Housing wealth
    House prices
    Financing constraints
    Business cycles
    General equilibrium model
    Wealth distribution
    Bequests
    Interest rates
    Risk premium

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    The macroeconomic effects of housing wealth, housing finance, and limited risk sharing in general equilibrium. / Favilukis, Jack; Ludvigson, Sydney; Van Nieuwerburgh, Stijn.

    In: Journal of Political Economy, Vol. 125, No. 1, 01.02.2017, p. 140-223.

    Research output: Contribution to journalArticle

    Favilukis, Jack ; Ludvigson, Sydney ; Van Nieuwerburgh, Stijn. / The macroeconomic effects of housing wealth, housing finance, and limited risk sharing in general equilibrium. In: Journal of Political Economy. 2017 ; Vol. 125, No. 1. pp. 140-223.
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