RT Generic
T1 News-driven housing booms: Spain vs. Germany
A1 Guinea, Laurentiu
A1 Puch, Luis A.
A1 Ruiz, Jesús
AB We investigate how the economy responds to anticipated (news) shocks to future investment decisions. Using structural vector autoregressions (SVARs), we show that news about the future relative price of residential investment explains a high fraction of the variance of output, aggregate investment and residential investment for Spain. In contrast, for Germany it is the news shocks on business structures and equipment that explain a higher fraction of the variance of output, consumption and non-residential investment. We confront the identified shock with other shocks to provide evidence that our structural interpretation is valid. Then, to interpret our empirical findings, we propose a stylized two-sector model of the willingness to substitute current consumption for future investment in housing, structures or equipment. The model combines a wealth effect driven by the expectation of rising house prices, with a reduced-form friction in labor reallocation. We find that the model calibrated for Spain displays a response toanticipated house price shocks that stimulate residential investment, whereas for Germany those shocks enhance investment in equipment and structures. The results highlight the propagation mechanism of anticipated shocks to future investment, which is consistent with the housing booms in Spain and their absence in Germany. Such a mechanism complements a view relying on a combination of monetary, financial or housing supply and demand, surprise shocks.
SN 2340-5031
YR 2022
FD 2022-07-08
LK https://hdl.handle.net/10016/35430
UL https://hdl.handle.net/10016/35430
LA eng
NO We acknowledge the Spanish Ministerio de Economía y Competitividad (grants ECO2016-76818 and PID2019-107161GB-C32) for financial support.
DS e-Archivo
RD 20 may. 2024