Housing Market Spillovers: Evidence from an Estimated DSGE Model
Matteo Iacovielloy Boston College Stefano Neriz Banca d' Italia
January 22, 2008
Abstract Using U.S. data and Bayesian methods, we quantify the contribution of the housing market to business uctuations. The estimated model, which contains nominal and real rigidities and collateral constraints, is used to address two questions. First, what shocks drive the housing market We …nd that the upward trend in real housing prices of the last 40 years can be explained by slow technological progress in the housing sector. Over the business cycle instead, housing demand and housing technology shocks account for roughly one-quarter each of the volatility of housing investment and housing prices. Monetary factors account for about 20 percent, but they played a major role in the housing market cycle at the turn of the century. Second, do uctuations in the housing market propagate to other forms of expenditure We …nd that the spillovers from the housing market to the broader economy are non-negligible, concentrated on consumption rather than business investment, and they have become more important over time, to the extent that …nancial innovation has increased the marginal availability of funds for credit-constrained agents. KEYWORDS: Housing, Wealth E¤ects, Bayesian Estimation, Two-sector Models. JEL CODES: E32, E44, E47, R21, R31
The views expressed in this paper are those of the authors and do not necessarily re the views of the ect Banca d' Italia. We thank Richard Arnott, Jesus Fernandez-Villaverde, Jordi Galí, Peter Ireland, Michel Juillard, Bob King, Gabe Lee, Lisa Lynch, Caterina Mendicino, Fabio Schiantarelli, Livio Stracca, Karl Walentin and conference and seminar participants for comments and suggestions. A technical appendix containing additional results, a computational appendix and replication …les are available at the following web page: http://www2.bc.edu/~iacoviel/research.htm. y iacoviel@bc.edu. Address: Boston College, Department of Economics, 140 Commonwealth Ave, Chestnut Hill, MA, 02467, USA. z stefano.neri@bancaditalia.it. Address: Banca d' Italia, Research Department, Via Nazionale 91, 00184 Roma, Italy.

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