Joint adjustment of house prices, stock prices and output towards short run equilibrium

Grandner, Thomas and Gstach, Dieter (2004) Joint adjustment of house prices, stock prices and output towards short run equilibrium. Department of Economics Working Paper Series, 88. Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.


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A dynamic IS-LM model including stocks and houses as additional assets will be analyzed in this paper. Providing also housing services, a major consumption item for most households, houses create an additional link between the monetary and the real sector of the economy. The adjustment path of output, house prices and stock prices after exogenous policy shocks will be derived within a rational expectation setup. This will show how different reaction patterns of asset prices are related to different elasticities of housing services demand. These general analytical results are contrasted with relevant empirical work, particularly Lastrapes [2002], leading to the identification of plausible elasticity ranges. The particular results for those shed new light upon the ongoing discussion about demand effects from real estate wealth and about determinants of house price fluctuations.

Item Type: Paper
Keywords: housing services demand / asset prices / portfolio equilibrium / saddlepath adjustment
Classification Codes: JEL E44, E52, R21
Divisions: Departments > Volkswirtschaft
Depositing User: Repository Administrator
Date Deposited: 09 Feb 2004 14:34
Last Modified: 09 Mar 2020 14:10


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