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Measuring the driving forces of the owner-occupied and rental housing market - A DSGE analysis

Forster, Robert 2018. Measuring the driving forces of the owner-occupied and rental housing market - A DSGE analysis. PhD Thesis, Cardiff University.
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Abstract

This thesis analyses the developments of the U.S. owner-occupied and rental housing markets. Furthermore, it evaluates whether loose monetary policy fuelled the housing boom and therefore contributed heavily to the latest financial crisis. The dissertation findings originate from two estimated DSGE models which accommodate a combination of various, distinct features. In contrast to the literature, I introduce a banking sector into the model economy and allow for a choice between either renting or owning a home. Accounting for these characteristics enables us to capture frictions arising from the banking sector on the one hand and to properly model the change in the homeownership structure on the other. Based on this framework, the second DSGE model relaxes the assumption of a fixed housing supply and introduces sticky prices into the consumption sector. The contributions of this dissertation are twofold. First, it determines the driving forces behind the pre and post-crisis movements of the rental and owner-occupied housing sectors. The results suggest that the latest rise in rental housing is driven by a combination of various factors, such as default, bank lending, change in preferences and news about the economic outlook. Furthermore, news about future productivity increases had a significant effect on house prices before and after the financial crisis. A robustness check confirms these findings. The second contribution is to show that accommodative pre-crisis monetary policy was not the main cause of the latest housing boom, as argued in one branch of the literature. Instead, bank lending behaviour and fundamentals played a key role in the expansion of the owner-occupied housing market. The dissertation finishes with a macroprudential policy evaluation.

Item Type: Thesis (PhD)
Date Type: Acceptance
Status: Unpublished
Schools: Business (Including Economics)
Uncontrolled Keywords: Owner-occupied and Rental Housing, Rental and House Prices, DSGE, Bayesian Estimation, Monetary Policy, Macroprudential Policy
Funders: Economic and Social Research Council
Date of First Compliant Deposit: 29 November 2018
Date of Acceptance: 27 November 2018
Last Modified: 29 Nov 2018 10:01
URI: http://orca.cf.ac.uk/id/eprint/117163

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