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

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.red.2024.02.001

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