DEPOCEN Working Paper Series
Quoc Hung Nguyen, 2012. "Housing Investment: What Makes It so Volatile? Theory and Evidence from OECD Countries"
This paper explains how mortgage market liberalization can introduce greater volatility in the housing market, which is a stylized fact documented from OECD countries, with a DSGE model where households face a credit constraint and housing is used as collateral. The housing collateral constraint creates a link between the housing market and borrowing capacity, a link that amplifies the response of housing demand to technology shocks and strengthens in economies with more liberalized mortgage markets. The calibrated model is able to explain about 90 percent of housing investment volatility in the UK.
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