Housing in DSGE models: Findings and new directions

Abstract

The goal of this chapter is to make the case that it is time for macroeconomists to restore the imbalance between the practical and empirical relevance of housing for macroeconomics on the one hand, and the treatment that macroeconomic models devote to housing on the other. After discussing a few stylized facts regarding the macroeconomic importance of housing markets, the chapter presents key results from the Iacoviello and Neri's (2010) DSGE model with housing, a model that is increasingly used in quantitative monetary policy analysis. Directions for further research are then suggested, focusing on the role of financial intermediation, the determinants of house prices and their persistence, the role of economic policy to stabilize house prices and the link between housing and labour markets. © 2010 Springer-Verlag Berlin Heidelberg.