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Author: Roberto Maria Croce
Publisher:
ISBN:
Category :
Languages : en
Pages : 99
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Abstract: In the first essay of this dissertation, "Monetary Policy and the Housing Cycle," I investigate the role of monetary policy in a housing boom that precipitated the U.S. financial crisis of 2007. I find expansionary policy between 2002 and 2005 accounts for about 50% of the peak deviation of real residential investment from its long-run trend, which occurred in the second quarter of 2005. To determine if monetary policy was a contributor to the housing boom I estimate a large dynamic stochastic general equilibrium model (DSGE) to fit the economy in several different time periods. I mathematically isolate a series of changes in the Fed Funds rate that are statistically unrelated to changes in the macroeconomy and classify these deviations as a measure of monetary policy. The magnitude of the monetary policy series is relatively small during the housing boom but explains half of the of the 2005 peak in residential investment because of inertia in the Fed Funds rate.
Author: Roberto Maria Croce
Publisher:
ISBN:
Category :
Languages : en
Pages : 99
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Book Description
Abstract: In the first essay of this dissertation, "Monetary Policy and the Housing Cycle," I investigate the role of monetary policy in a housing boom that precipitated the U.S. financial crisis of 2007. I find expansionary policy between 2002 and 2005 accounts for about 50% of the peak deviation of real residential investment from its long-run trend, which occurred in the second quarter of 2005. To determine if monetary policy was a contributor to the housing boom I estimate a large dynamic stochastic general equilibrium model (DSGE) to fit the economy in several different time periods. I mathematically isolate a series of changes in the Fed Funds rate that are statistically unrelated to changes in the macroeconomy and classify these deviations as a measure of monetary policy. The magnitude of the monetary policy series is relatively small during the housing boom but explains half of the of the 2005 peak in residential investment because of inertia in the Fed Funds rate.
Author: Plamen Iossifov
Publisher: International Monetary Fund
ISBN: 1451915586
Category : Business & Economics
Languages : en
Pages : 35
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Book Description
We examine the interest rate elasticity of housing prices, advancingthe empirical literature in two directions. First, we take a commonly used cross-country panel dataset and evaluate the housing price equation using a consistent estimator in the presence of endogenous explanatory variables and a lagged dependent variable. Second, we carry-out a novel analysis of determinants of residential housing prices in a cross-section of countries. Our results show that the short-term interest rate, and hence monetary policy, has a sizable impact on residential housing prices.
Author: Yasuhiro Nakagami
Publisher:
ISBN:
Category : Housing
Languages : en
Pages : 318
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Book Description
Author: Bulent Guler
Publisher:
ISBN:
Category : Housing
Languages : en
Pages : 372
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Book Description
In the first chapter, I study the effects of innovations in information technology on the housing market. Specifically, I focus on the improved ability of lenders to assess the credit risk of home buyers, which has become possible with the emergence of automated underwriting systems in the United States in the mid-1990s. I develop a standard life-cycle model with incomplete markets and idiosyncratic income uncertainty. I explicitly model the housing tenure choice of the households: rent/purchase decision for renters and stay/sell/default decision for homeowners. Risk-free lenders offer mortgage contracts to prospective home buyers and the terms of these contracts depend on the observable characteristics of households. Households are born as either good credit risk types--having a high time discount factor--or bad types--having a low time discount factor. The type of the household is the only source of asymmetric information between households and lenders. I find that as lenders have better information about the type of households, the average down payment fraction decreases together with an increase in the average mortgage premium, the foreclosure rate, and the dispersions of mortgage interest rates and down payment fractions, which are consistent with the trends in the housing market in the last 15 years. From a welfare perspective, I find that better information, on average, makes households better off. In the second chapter, I focus on the labor market behavior of couples. Search theory routinely assumes that decisions about the acceptance/rejection of job offers (and, hence, about labor market movements between jobs or across employment states) are made by individuals acting in isolation. In reality, the vast majority of workers are somewhat tied to their partners--in couples and families--and decisions are made jointly. This chapter studies, from a theoretical viewpoint, the joint job-search and location problem of a household formed by a couple (e.g., husband and wife) who perfectly pool income. The objective of the exercise, very much in the spirit of standard search theory, is to characterize the reservation wage behavior of the couple and compare it to the single-agent search model in order to understand the ramifications of partnerships for individual labor market outcomes and wage dynamics. We focus on two main cases. First, when couples are risk averse and pool income, joint-search yields new opportunities--similar to on-the job search--relative to the single-agent search. Second, when couples face offers from multiple locations and a cost of living apart, joint-search features new frictions and can lead to significantly worse outcomes than single-agent search. Finally, in the third chapter, I focus on the relation between house prices and interest rates. Although interest rates and housing prices seem mostly to have a negative relation in the data, the relation does not seem to be stable. For example, the recent run up in the global housing prices is generally explained by globally low interest rates. On the other hand, there have been periods where housing prices and interest rates moved together. Motivated by these observations, I formulate a two period OLG model to find out the form of the relationship between interest rates and housing prices. It appears that the distribution of homeownership is also important for housing price dynamics. I show that housing prices in the equilibrium do not always have a negative relation with interest rates.
Author: Xufeng Qian
Publisher:
ISBN:
Category :
Languages : en
Pages : 128
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Author: Chuanlei Sun
Publisher:
ISBN:
Category : Credit
Languages : en
Pages : 148
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Author: Min-Ho Nam
Publisher:
ISBN:
Category : Housing
Languages : en
Pages : 398
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Book Description
This thesis, motivated by my reflections about the failings of monetary policy implementation as a cause of the sub-prime crisis, attempts to answer the following inquiries: (i) whether interest rates have played a major role in generating the house price fluctuations in the U.S., (ii) what are the effects of accommodative monetary policy on the economy given banks' excessive risk-taking, and (iii) whether an optimal monetary policy rule can be found for curbing credit-driven economic volatilities in the model economy with unconventional transmission channels operating. By using a decomposition technique and regression analysis, it can be shown that short-term interest rates exert the most potent influence on the evolution of the volatile components of housing prices. One possible explanation for this is that low policy rates for a prolonged period tend to encourage bankers to take on more risk in lending. This transmission channel, labelled as the risk-taking channel, accounts for the gap to some extent between the forecast and the actual impact of monetary policy on the housing market and the overall economy. A looser monetary policy stance can also shift the preference of economic agents toward housing as theoretically and empirically corroborated in the context of choice between durable and nondurable goods. This transmission route is termed the preference channel. If these two channels are operative in the economy, policy makers need to react aggressively to rapid credit growth in order to stabilize the paths of housing prices and output. These findings provide meaningful implications for monetary policy implementation. First of all, central bankers should strive to identify in a timely fashion newly emerging and state-dependent transmission channels of monetary policy, and accurately assess the impact of policy decisions transmitted through these channels. Secondly, the intervention of central banks in the credit or housing market by adjusting policy rates can be optimal, relative to inaction, in circumstances where banks' risk-taking and the preference for housing are overly exuberant.
Author: Omer Bayar
Publisher:
ISBN:
Category :
Languages : en
Pages : 72
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Book Description
Central banks use a series of relatively small interest rate changes in adjusting their monetary policy stance. This persistence in interest rate changes is well documented by empirical monetary policy reaction functions that feature a large estimated coefficient for the lagged interest rate. The two hypotheses that explain the size of this large estimated coefficient are monetary policy inertia and serially correlated macro shocks. In the first part of my dissertation, I show that the effect of inertia on the Federal Reserve's monthly funds rate adjustment is only moderate, and smaller than suggested by previous studies. In the second part, I present evidence that the temporal aggregation of interest rates puts an upward bias on the size of the estimated coefficient for the lagged interest rate. The third part of my dissertation is inspired by recent developments in the housing market and the resulting effect on the overall economy. In this third essay, we show that high loan-to-value mortgage borrowing reduces the effectiveness of monetary policy.
Author: Calvin Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 118
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Book Description
This dissertation consists of three chapters that concern the housing market and home prices. The first chapter analyzes why foreclosures were more prevalent than short sales despite the advantages that short sales offered. The Great Recession led to widespread mortgage defaults, with borrowers resorting to both foreclosures and short sales to resolve their defaults. I first quantify the economic impact of foreclosures relative to short sales by comparing the home price implications of both. After accounting for omitted variable bias, I find that homes selling as a short sale transact at 8.5% higher prices on average than those that sell after foreclosure. Short sales also exert smaller negative externalities than foreclosures, with one short sale decreasing nearby property values by one percentage point less than a foreclosure. So why weren't short sales more prevalent? These home-price benefits did not increase the prevalence of short sales because free rents during foreclosures caused more borrowers to select foreclosures, even though higher advances led servicers to prefer more short sales. In states with longer foreclosure timelines, the benefits from foreclosures increased for borrowers, so short sales were less utilized. I find that one standard deviation increase in the average length of the foreclosure process decreased the short sale share by 0.35-0.45 standard deviation. My results suggest that policies that increase the relative attractiveness of short sales could help stabilize distressed housing markets. The second chapter analyzes how the housing market captures the efficiency of public goods. This chapter is co-authored with David Schönholzer. In the U.S., 36 million people live in unincorporated communities without separate municipal government, instead receiving limited local public goods by counties and special districts. This paper formalizes and empirically quantifies the extent of sorting induced by this arrangement of local governance. Based on predictions of a Tiebout model with heterogeneous income and preferences, we document the effect of municipal governance on housing supply, house prices, land prices, and public goods. We use a boundary discontinuity design and an event study design with administrative data from all boundary changes of 189 Californian cities, combined with the universe of individual property sales over the years 1988-2013. We find considerable sorting induced by municipal boundaries and their changes: sales prices are around $6,000 higher in municipalities and land values are 20% higher. Both housing supply and land values increase substantially after annexation. Changes in per capita expenditures and increases in the quality of police services provide suggestive evidence for public goods as the key mechanism for sorting. The third chapter analyzes the effects of real estate investments by foreign Chinese on local economies in the United States. This chapter is co-authored with Zhimin Li and Leslie Sheng Shen. Starting in 2007, the U.S. witnessed an unprecedented surge in housing purchases by foreign Chinese. We exploit cross-local-area variation in the concentration of Chinese population stemming from pre-sample period differences in Chinese population settlement to identify the economic effects of these investments. Using detailed transaction-level housing purchase data, we find housing investment by foreigners induces higher local area housing net wealth, leading to higher local employment in the non-tradable sectors. Our results suggest the improvement in household balance sheet resulting from capital inflow for housing investment in the U.S. played a mitigating role for the domestic economy during the Great Recession. Based on our empirical findings, we develop a framework that incorporates the housing net worth channel for interpreting the empirical estimates. Our evidence highlight the role of capital inflow and foreign investments on the domestic output and employment, especially in times of economic downturns.
Author: Yifan Chen
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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This dissertation examines the dynamics between housing prices, firms, and households. The first chapter focuses on sequential information revelation in the housing markets; the second chapter investigates the impact of house price appreciation on the returns of value versus growth firms; the third chapter estimates the effect of gun control on home values. In Chapter 1, I use Amazon's progressive revelation of its new headquarters locations in Virginia and New York to demonstrate that the housing market fully incorporates information about future demand well before disclosure. Spatial difference-in-differences analysis shows that housing prices near the Virginia headquarters exhibit 4.9% premia before Amazon's headquarters decision but no additional increase upon decision. Price premia for New York reach 17.5% before the decision but disappear once Amazon cancels the headquarters. Other finalist cities exhibit no price premia, precluding the possibility of speculation. Overall, this study suggests that the housing market can quickly incorporate private information about future demand shocks. In Chapter 2, I investigate the value-growth premium puzzle by merging insights from urban economics and finance that relate firm location to its stock performance. The value-growth premium in locations with high historical house price appreciation is 3.6% per year larger than the premium in areas that experienced little house price appreciation. The results support investment-based models explaining the value premium; moreover I find the house price channel reduces returns of growth firms rather than increasing returns of value firms. House price appreciation remains significant after controlling for common explanations of the premium. In Chapter 3, using cross-border variation in the timing of state gun control law passage dates, I find that the introduction of universal background checks for gun sales results in a roughly 2.3 percent decline in housing prices on average. I find a more significant decrease in housing prices, i.e., up to 5.3 percent, if the state is neighboring a Republican rather than a Democratic state. This result is robust to several specification tests and does not appear to be associated with neighborhood crime rate changes.
