Housing over Time and over the Life Cycle: A Structural Estimation
53 Pages Posted: 14 May 2009 Last revised: 21 Nov 2019
There are 3 versions of this paper
Housing over Time and over the Life Cycle: A Structural Estimation
Housing Over Time and Over the Life Cycle: A Structural Estimation
Housing Over Time and Over the Life Cycle: A Structural Estimation
Date Written: March 1, 2009
Abstract
The authors estimate a structural model of optimal life-cycle housing and consumption in the presence of realistic labor income and house price uncertainties. The model postulates constant elasticity of substitution between housing service and nonhousing consumption, and explicitly incorporates a house adjustment cost. Their estimation fits the cross-sectional and time-series household wealth and housing profiles from the Panel Study of Income Dynamics quite well and suggests an intra-temporal elasticity of substitution between housing and nonhousing consumption of 0.33 and a housing adjustment cost that amounts to about 15 percent of house value. Policy experiments with estimated preference parameters imply that households respond nonlinearly to house price changes with large house price declines leading to sizable decreases in both the aggregate homeownership rate and aggregate nonhousing consumption. The average marginal propensity to consume out of housing wealth changes ranges from 0.4 percent to 6 percent. When lending conditions are tightened in the form of a higher down payment requirement, interestingly, large house price declines result in more severe drops in the aggregate homeownership rate but milder decreases in nonhousing consumption.
Keywords: Life-cycle, housing adjustment costs, intratemporal substitution, methods of simulated moments
JEL Classification: E21, R21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Accounting for Changes in the Homeownership Rate
By Matthew Chambers, Carlos Garriga, ...
-
Housing and the Macroeconomy: The Role of Implicit Guarantees for Government-Sponsored Enterprises
By Karsten Jeske and Dirk Krueger
-
Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises
By Karsten Jeske, Dirk Krueger, ...
-
Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises
By Karsten Jeske, Dirk Krueger, ...
-
Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises
By Karsten Jeske, Dirk Krueger, ...
-
A Dynamic Model of Housing Demand: Estimation and Policy Implications
By Patrick Bajari, Phoebe Chan, ...
-
A Dynamic Model of Housing Demand: Estimation and Policy Implications
By Patrick Bajari, Phoebe Chan, ...