TY  - JOUR
AU  - Favilukis, Jack
AU  - Ludvigson, Sydney C
AU  - Van Nieuwerburgh, Stijn
TI  - The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15988
PY  - 2010
Y2  - May 2010
DO  - 10.3386/w15988
UR  - http://www.nber.org/papers/w15988
L1  - http://www.nber.org/papers/w15988.pdf
N1  - Author contact info:
Jack Favilukis
Sauder School of Business
University of British Columbia
Henry Angus Building 2053 Main Mall
Office 867
Vancouver, BC V6T 1Z2
Canada
E-Mail: jack.favilukis@sauder.ubc.ca

Sydney C. Ludvigson
Department of Economics
New York University
19 W. 4th Street, 6th Floor
New York, NY  10002
Tel: 212/998-8927
Fax: 212/995-4186
E-Mail: sydney.ludvigson@nyu.edu

Stijn Van Nieuwerburgh
Columbia University
Graduate school of Business
Uris Hall, office 809
3022 Broadway
New York, NY 10027
E-Mail: svnieuwe@gsb.columbia.edu
AB  - This paper studies a quantitative general equilibriummodel of the housing market where a large number of overlapping generations of homeowners face both idiosyncratic and aggregate risks but have limited opportunities to insure against these risks due to incomplete financial markets and collateralized borrowing constraints. Interest rates in the model, like housing and equity returns, are determined endogenously from a market clearing condition. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk, and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium. Third, low interest rates cannot explain high home values. 
ER  -