Sticky House Price ? ?

Vorada LimjaroenratBarcelona Graduate School of EconomicsMSc. Macroeconomic Policy and Financial Markets

Outline

• House price stickiness

• Housing bubbles

• Housing bubbles under different credit market conditions

Importance of House Price Stickiness(I)• Basrsky, House, and Kimball(2007)

Sticky Nondurables GoodsFlexible Durable Goods(Housing)

Tightening Monetary

Policy

Nondurables Goods

Production

Durable Goods Production

NEUTRAL EFECT

Importance of House Price Stickiness(II)• Bills and Klenow(2004)

Durable goods have higher frequency of price adjustment than nondurables

FULLY FLEXIBLE HOUSE PRICE is prevalently assumed in the NK model !!

Is this the correct assumption?

Business Cycle Analysis

SVAR analysisModel of Gali and Gambetti(2014)

Monetary Policy Tightening (U.S.)

Related Literatures(I)

House Price is Sticky Downward

Case(1994) : if nominal price does not move to clear the market

Quantity clearing

Leamer(2007) : house price has volume cycle not the price cycle

Crucial in explaining business cycle/recession

Case(2003) : questionnaire survey of nearly two decades

Related Literatures(II)

Source: Girouard, N., et al.(2006)

Related Literatures(III)

Source: Girouard, N., et al.(2006)

“Housing Bubbles?”

Partial Equilibrium Model

• Fundamental Component

• Rational Asset Pricing

• Both theory and evidence implies that

< 0

• Dynamic response of asset price to monetary policy

1st channel that interest rate affect bubbles

• Bubble is growing with interest rate

• Fundamental and Bubble component

2nd channel that interest rate affect bubbles

• Dynamic Response of Bubble component to interest rate shock

Rent Puzzle

Reconsider the Model…

Housing StockSource: Gali and Gambetti(2013)

Comparing Housing and Stock

Main Contributions of the paper

• House Price is sticky

• There is bubble component in house price

• Real rent puzzle arises