Leverage and Price-Rent Dynamics
Speaker: Prof. Pengfei Wang (HKUST)
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Topic: |
Leverage and Price-Rent Dynamics |
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Time&Date: |
12:00-13:30 pm, 2019/7/31 (Wednesday) |
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Venue: |
Room 619, Teaching A |
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Speaker: |
Prof. Pengfei Wang (HKUST) |
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| Abstract: | Housing demand shocks are an important source of housing price fluctuations and, through the collateral channel, they drive macroeconomic fluctuations as well. However, these reduced-form shocks in the standard macro models fail to generate the observed large fluctuations in the housing price-to-rent ratio. We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. Households with high marginal utility of housing face binding credit constraints, giving rise to a liquidity premium in the aggregated housing Euler equation. The liquidity premium drives a wedge between the house price and the average rent and allows credit supply shocks to generate large fluctuations in house prices and the price-to-rent ratio. |
