1
Ph.D candidate in Economics, Yazd University, Iran
2
Associate Professor of Economics Yazd University, Iran
3
Professor of Economics Yazd University, Iran
Abstract
The main objective of this study is to examine the effect of housing market on real sector of economy and to identify its role in business cycle process. To this end, the paper has used a Dynamic Stochastic General Equilibrium Model. The specific feature of this models is that it has containes two types of households: Patient and Impatient. Patient households had greater discount factor. They save and accumulate capital and they produce goods and services. Patient households also supply funds to impatient households who have smaller discount factor. The maximum amount which impatient households can borrow depends on the value of house owned by them. In fact, this assumption tries to impose the collateral constraint which emphasized by Bernanke (1995) in the model. This channel has a crucial role in transmitting the housing market shocks to real sector. To estimate the model, we used both Calibration and Bayesian approaches. We estimated the model using quarterly data over the period 2005Q1–2017Q4. Results of IRFs indicated that a positive shock to housing preference (housing demand shock) generated an increase in Real Housing Prices, Real Investment in Housing and Non-housing Sectors, Real Consumption and Real GDP. Also to identify the role of collateral effect in the positive relationship between housing and real sector we set the amount of collateral effect in the model equal to zero and then we calculated IRFs again based on this assumption. Results showed that collateral effect have played a key role in transmission mechanism of housing shocks to real sector.
Adrian, T., & Shin, H. S. (2009). Financial intermediation and monetary economics. Federal Reserve Bank of New York Staff Reports, No. 398.
Altunbas, Y., Gambacortab, L., & Marques-Ibanezc, D. (2014). Does monetary policy affect bank risk?. International journal of central banking, 10(1), 95-136.
Bahrami, J. & aslani, P. (2011). The analysis of oil shocks effects on residential investment dynamic stochastic general equilibrium model on real business cycles Theory. Journal of economic modeling research,1 (4), 57-82 (In Persian).
Barsky, R. B., House, C. L., & Kimball, M. S. (2007). Sticky-price models and durable goods. The American economic review, 97(3), 984-998.
Beheshti, M. B., & Mohseni Zonuzi, F. S.(2010). Investigation of housing market in Iran through using monetary transition mechanism. Journal of economic modeling research, 1 (1), 187-211 (In Persain).
Benhabib, J., Rogerson, R., & Wright, R. (1991). Homework in macroeconomics: Household production and aggregatefluctuations. Journal of political economy, 99, 1166–1187.
Bernanke, B. S., & Gertler, M. (1995). Inside the black box: the credit channel of monetary policy transmission. National bureau of economic research, (No. w5146).
Campbell, J. Y., & Cocco, J. F. (2007). How do house prices affect consumption? Evidence from micro data. Journal of monetary Economics, 54(3), 591-621.
Cesa-Bianchi, A. (2013). Housing cycles and macroeconomic fluctuations: A global perspective. Journal of International Money and Finance, 37, 215-238.
Davis, M. A., & Heathcote, J. (2005). Housing and the business cycle. International Economic Review, 46, 751–784.
Davis, M. A., & Heathcote, J. (2005). Housing and the business cycle. International Economic Review, 46(3), 751-784.
Ferrara, L., & Koopman, S. J. (2010). Common business and housing market cyles in the euro area from a multivariate decomposition in housing markets in europe. Springer Berlin Heidelberg, 105-128.
Fisher, J., D. (2007). Why does household investment lead business investment over the business cycle? Journal of political economy, 115(1), 141-168.
Goodhart, C., & Hofmann, B. (2008). House prices, money, credit, and the macroeconomy. Oxford review of economic policy, 24(1), 180–205.
Horvath, M. (2000). Sectoral shocks and aggregate fluctuations. Journal of Monetary Economics, 45(1), 69-106.
Iacoviello, M. (2005). House prices, borrowing constraints, and monetary policy in the business cycle. American Economic Review, 95, 739–764.
Iacoviello, M., & Neri, S. (2010). Housing market spillovers: Evidence from an estimated dsge model. American Economic Journal: Macroeconomics, 2(2), 125–164.
18. Komeijani, A., & Haeri, M. (2013). The role of housing price on money transmission mechanism. Journal of economic strategy (Rahbord-e- eghtesadi), 5(2), 41-68 (In Persian).
Kydland, F. E., Rupert, P., & Šustek, R. (2016). Housing dynamics over the business cycle. International Economic Review, 57(4), 1149-1177.
Leamer, E. E. (2007). Housing IS the business cycle. Proceedings, Federal Reserve Bank of Kansas City, 149–233.
McGrattan, E., Rogerson, R., & Wright, R. (1997). An equilibrium model of the business cycle with household productionand fiscal policy. International Economic Review, 38, 267–290.
Mehregan, N., & Daliri, H. (2013). Banks respond to monetary policy shocks based on DSGE model . Quarterly journal of economic research and policies; 21 (66), 39-68 (In Persian).
Mehregan, N. (2014). Indices of housing inter-sectional linkage. Journal of housing economics (eghtesad-e- maskan),49,11-28 (In Persian).
Stiglitz, J. E. (2011). Rethinking macroeconomics: What failed, and how to repair it. Journal of the European Economic Association, 9(4), 591-645.
Tahsili, h. (2012). Examination of housing market fluctuations and its relation with business cycles in Iran’s economy. Journal of Economy and Regional Development, 3 (19) (In Persian).
Tavakolian, H., & komijani, A. (2012). Monetary policy under fiscal dominance and implicit inflation target in Iran: A DSGE approach. Journal of economic modeling research, 2 (8), 87-117 (In persian).
Tavakolian, H., & Jalali Naeeni. (2017). Optimal and discretionay monetary and exchange policies in Iran: A DSGE approach. Journal of economic researches, 70(22), 33-98 (In Persian).
Mahmoodi, E., Nasrollahi, Z., & Yavari, K. (2019). The Effect of Housing Market Fluctuations on Macroeconomy: A DSGE Approach. Quarterly Journal of Applied Theories of Economics, 6(2), 239-268.
MLA
Elahe Mahmoodi; Zahra Nasrollahi; Kazem Yavari. "The Effect of Housing Market Fluctuations on Macroeconomy: A DSGE Approach". Quarterly Journal of Applied Theories of Economics, 6, 2, 2019, 239-268.
HARVARD
Mahmoodi, E., Nasrollahi, Z., Yavari, K. (2019). 'The Effect of Housing Market Fluctuations on Macroeconomy: A DSGE Approach', Quarterly Journal of Applied Theories of Economics, 6(2), pp. 239-268.
VANCOUVER
Mahmoodi, E., Nasrollahi, Z., Yavari, K. The Effect of Housing Market Fluctuations on Macroeconomy: A DSGE Approach. Quarterly Journal of Applied Theories of Economics, 2019; 6(2): 239-268.
)