Forty Years of Real Estate Cycles in the US - Stylized Facts and a non-linear dynamic Model with Keynesian Policy Implications

Publication: Working/Discussion PaperWorking Paper/Preprint


This paper tries to replicate some ‘stylized facts’ related to real estate cycles in the US by a non-linear Keynesian macro-model in continuous time. During the last …fty years three counter-clockwise trajectories of home prices, residential in- vestment, household debt and real mortgage interest rates can be observed. Those and further stylized facts get simulated via stock-‡ow consistent interactions of a Marshallian housing market, a household sector, a banking sector, a government sector and a goods market. Some tentative conclusions can be drawn (1) The long- run e¤ect of a higher minimum equity reduces output volatility, but the impact e¤ect is de‡ationary. (2) Fiscal policy focusing on stabilizing the government debt to GDP ratio is destabilizing, counter-cyclical …scal policy lowers output volatility. (3) Lower capital gain and/or corporate tax rates raise output volatility. (4) Swift counter-cyclical reaction of monetary policy to deviations from targets by adjusting the short-term fund rate is necessary, but not su¢ cient for stability, as the ‘pass through’to long-term interest rates is crucial. (5) Enforcing stricter/softer sectorial creditworthiness criteria vis-a-vis home buyers during the boom/recession reduces output and home price volatility and might be superior to pure interest policy.
Original languageEnglish
Publication statusPublished - 1 Apr 2015

Cite this