Risk Shocks and Housing Markets

Dorofeenko, Victor and Lee, Gabriel S. and Salyer, Kevin D. (February 2010) Risk Shocks and Housing Markets. IHS Economics Series 249

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Abstract or Table of Contents

Abstract: This paper analyzes the role of uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production. The analysis demonstratesthat risk shocks to the housing production sector are a quantitatively important impulse mechanism for the business cycle. Also, we demonstrate that bankruptcy costs act as an endogenous markup factor in housing prices; as a consequence, the volatility of housing prices is greater than that of output, as observed in the data. The model can also account for the observed countercyclical behavior of risk premia on loans to the housing sector.;

Item Type: IHS Series
Keywords: 'Agency costs' 'Credit channel' 'Time-varying uncertainty' 'Residential investment' 'Housing production' 'Calibration'
Classification Codes (e.g. JEL): E4, E5, E2, R2, R3
Status: Published
Date Deposited: 26 Sep 2014 10:39
Last Modified: 23 Jul 2017 03:52
URI: http://irihs.ihs.ac.at/id/eprint/1973

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