Publication Type
Journal Article
Version
submittedVersion
Publication Date
7-2024
Abstract
We show the competing effects of a housing bubble on the real economy by developing a multi-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their housing, so a housing bubble helps firms obtain credit to finance their investment and expand production. On the other hand, a boom in the housing sector crowds out labor in the non-housing sector. We show that housing booms can reduce social welfare both in the steady state and in the transitional dynamics only when the production externalities in the non-housing sector are sufficiently large. We quantitatively evaluate our model and demonstrate its robustness with model extensions. Policies that target labor, housing transactions and output generate different welfare implications.
Keywords
Collateral effect, Credit constraint, Crowd-out effect, Housing bubble, Housing policies
Discipline
Econometrics | Finance | Real Estate
Research Areas
Econometrics
Publication
Review of Economic Dynamics
Volume
53
First Page
71
Last Page
122
ISSN
1094-2025
Identifier
10.1016/j.red.2024.02.001
Publisher
Elsevier
Citation
DONG, Feng; JIAO, Yang; and SUN, Haoning.
Bubbly booms and welfare. (2024). Review of Economic Dynamics. 53, 71-122.
Available at: https://ink.library.smu.edu.sg/soe_research/2739
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.red.2024.02.001