What Drives the House Price Movement? Evidence from Real Business Cycle Analysis

Chao Li; Han Cang; Qixuan Zhu

doi:10.6981/FEM.202407_5(7).0017

Authors

Chao Li
Han Cang
Qixuan Zhu

DOI:

https://doi.org/10.6981/FEM.202407_5(7).0017

Keywords:

Housing Price; RBC Model; Land Price; TFP Shocks; Equilibrium Model.

Abstract

In this paper, we develop and calibrate a general equilibrium real business cycle model with several aggregate shocks to quantitatively study the effects of various shocks on housing price and macroeconomic variables. We found that the TFP shocks play an essential role in the modeled economy - over 98% of the variation of housing price can be explained by the changes in technology in the housing sector. The land price shock accounts for little fluctuations of housing price. This is since the land share in the construction industry is insignificant. The government expenditure shock also has ignorable effect on the housing market. In terms of the impact on aggregate variables, we find that an increase in government spending has positive effects on the overall employment in the short run but no effects in the long run, whereas the improvement of productivity in nondurable sector causes an increase in structural unemployment.

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The land-price data series is built by using the Federal Housing Finance Agency (FHFA) national land price index which is available from 1975 to 2018. The government expenditure series is from BEA, National Income and Product Accounts, Section 3 Government Expenditures which can be found on: https://apps.bea.gov/iTable/iTable.cfm?ReqID=19&step=4&isuri=1&1921=flatfiles.