Risk Shocks and Housing Markets

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


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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
Date Deposited: 26 Sep 2014 10:39
Last Modified: 14 Jun 2024 10:32
ISBN: 1605-7996
URI: https://irihs.ihs.ac.at/id/eprint/1973

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