Seminar Vol. 133

Title: A Theory of Housing Demand Shocks

Speaker: Pengfei Wang, Hong Kong University of Science and Technology (KHUST)

Time: March 25th, 2019 13:30–15:00

Venue: Conference Room 106B, Zhonghui Building (IESR, JNU College of Economics)

About the speaker:

Pengfei Wang is an Associate Professor at Hong Kong University of Science and Technology, he joined HKUST in 2007 after obtaining his Ph.D. in Economics from Cornell University. His research interests lie in the areas of business cycles, financial economics, and monetary economics. His recent research focuses on asset bubbles and credit market frictions, which are pervasive in emerging markets. Professor Wang has published 14 articles in top journals such as Econometrica, American Economic Review, Journal of Economic Theory, Journal of Monetary Economics, American Economic Journal: Macroeconomics, Review of Economic Dynamics, and Journal of Economic Dynamics and Control.

Abstract:

Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the “price-rent puzzle”). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large co-movements between the house price and the price-to-rent ratio. We provide empirical evidence from cross-country and cross-MSA data to support this theoretical prediction.