Sticky House Price ? ? Vorada Limjaroenrat Barcelona Graduate School of Economics MSc. Macroeconomic Policy and Financial Markets
Dec 01, 2014
Sticky House Price ? ?
Vorada LimjaroenratBarcelona Graduate School of EconomicsMSc. Macroeconomic Policy and Financial Markets
Outline
• House price stickiness
• Housing bubbles
• Housing bubbles under different credit market conditions
Importance of House Price Stickiness(I)• Basrsky, House, and Kimball(2007)
Sticky Nondurables GoodsFlexible Durable Goods(Housing)
Tightening Monetary
Policy
Nondurables Goods
Production
Durable Goods Production
NEUTRAL EFECT
Importance of House Price Stickiness(II)• Bills and Klenow(2004)
Durable goods have higher frequency of price adjustment than nondurables
FULLY FLEXIBLE HOUSE PRICE is prevalently assumed in the NK model !!
Is this the correct assumption?
Business Cycle Analysis
SVAR analysisModel of Gali and Gambetti(2014)
Monetary Policy Tightening (U.S.)
Related Literatures(I)
House Price is Sticky Downward
Case(1994) : if nominal price does not move to clear the market
Quantity clearing
Leamer(2007) : house price has volume cycle not the price cycle
Crucial in explaining business cycle/recession
Case(2003) : questionnaire survey of nearly two decades
Related Literatures(II)
Source: Girouard, N., et al.(2006)
Related Literatures(III)
Source: Girouard, N., et al.(2006)
“Housing Bubbles?”
Partial Equilibrium Model
• Fundamental Component
• Rational Asset Pricing
• Both theory and evidence implies that
< 0
• Dynamic response of asset price to monetary policy
1st channel that interest rate affect bubbles
• Bubble is growing with interest rate
• Fundamental and Bubble component
2nd channel that interest rate affect bubbles
• Dynamic Response of Bubble component to interest rate shock
Rent Puzzle
Reconsider the Model…
Housing StockSource: Gali and Gambetti(2013)
Comparing Housing and Stock
Main Contributions of the paper
• House Price is sticky
• There is bubble component in house price
• Real rent puzzle arises