Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200542
Authors: 
Liu, Zheng
Wang, Pengfei
Zha, Tao
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 2019-4
Abstract: 
Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the "price-rent puzzle"). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large comovements between the house price and the price-to-rent ratio. We provide empirical evidence from cross-country and cross-MSA data to support this theoretical prediction.
Subjects: 
price-rent puzzle
heterogeneity
marginal agent
cutoff point
liquidity premium
price-to-rent ratio
collateral constraint
JEL: 
E21
E44
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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