Template-Type: ReDIF-Paper 1.0
Author-Name: Kevin Salyer
Author-Name-First: Kevin
Author-Name-Last: Salyer
Author-Name: Victor Dorofeenko
Author-Name-First: Victor
Author-Name-Last: Dorofeenko
Author-Name: Gabriel Lee
Author-Name-First: Gabriel
Author-Name-Last: Lee
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Risk Shocks and Housing Markets
Abstract: This paper analyzes the role of uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production. The analysis demonstrates that risk shocks to the housing production sector are a quantitatively important impulse mechanism for the business cycle. Also, we demonstrate that bankruptcy costs act as an endogenous markup factor in housing prices; as a consequence, the volatility of housing prices is greater than that of output, as observed in the data. The model can also account for the observed countercyclical behavior of risk premia on loans to the housing sector.
Length: 43
File-URL: https://repec.dss.ucdavis.edu/files/ZG3pRBbaGXChqiRu49QrLqPr/10-11.pdf
File-Format: application/pdf
Number: 89
Classification-JEL: E4, E5, E2, R2, R3
KeyWords: agency costs, credit channel, time-varying uncertainty, residential investment, housing production, calibration
Creation-Date: 20100606
Handle: RePEc:cda:wpaper:89