Productivity shocks and housing market inflations in new Keynesian models

Ko, Jun-Hyung (2011): Productivity shocks and housing market inflations in new Keynesian models.

Abstract

Econometric evidence suggests the existence of two dynamics in the postwar U.S. housing market: (i) housing rental and purchase prices co-move positively in response to productivity shocks, and (ii) the purchase price exhibits much larger volatile movements than the rental price in response to the shocks. A standard New Keynesian model with nominal rigidity in the production sector is inconsistent with these facts. We incorporate a rental market into an otherwise standard New Keynesian model with durables and show that nominal rigidity in the rental market contributes to our empirical findings.

• Item Type: MPRA Paper
• Language: English
• Keywords: Productivity shock; price-rent ratio; housing prices
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R31 - Housing Supply and Markets

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