Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171953
Authors: 
Bulusu, Narayan
Duarte, Jefferson
Vergara-Alert, Carles
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-62
Abstract: 
The common-factor hypothesis is one possible explanation for the housing wealth effect. Under this hypothesis, house price appreciation is related to changes in consumption as long as the available proxies for the common driver of housing and non-housing demand are noisy and housing supply is not perfectly elastic. We simulate a model in which a common factor drives the relation between house prices and consumption to examine the extent to which the common-factor hypothesis can explain the housing wealth effect. Our results indicate that the common-factor hypothesis can easily explain the strong housing wealth effect estimated with US state-level data.
Subjects: 
Economic models
Housing
JEL: 
E21
R31
Document Type: 
Working Paper

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