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Macroeconomics and Housing

Paper Session

Friday, Jan. 4, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, 305
Hosted By: Chinese Economic Association in North America
  • Chair: Charles Ka Yui Leung, City University of Hong Kong

Spatial Misallocation in Chinese Housing and Land Markets

Yongheng Deng
,
University of Wisconsin-Madison
Yang Tang
,
Nanyang Technological University
Ping Wang
,
Washington University-St. Louis
Jing Wu
,
Tsinghua University

Abstract

Housing and land prices in China have experienced dramatic growth in the past decade. In conjunction with the rapid growth, housing and land price dispersion across Chinese cities have also become more dispersed. This is likely due to different local government institutions and management practices, which causes market frictions to vary across space. In this paper, we introduce three types of city-specific frictions, namely, housing market, land market and capital market frictions to capture server capital market distortion as well as the fact that land demand in China is never simply a derived demand of housing. We incorporate all three types of frictions into a dynamic competitive spatial equilibrium framework. Our model economy contains a rural area and multiple geographically segmented cities in the urban area. Rural-urban migration decision is endogenous. Each city has a manufacturing sector and a housing sector. We calibrate the model into Chinese economy 2007-2013 for all tier one, tier two and tier three cities. The calibrated model can successfully mimic the pattern of city-specific housing and land price growth, in relative mean and dispersion measures. We further compute the extent of spatial misallocation in each housing and land market and then analyze its implications for local and aggregate inefficiency.

Housing Wealth and Consumption: New Evidence from Household-Level Panel Data

Kristopher Gerardi
,
Federal Reserve Bank of Atlanta
Kyle Herkenhoff
,
University of Minnesota
Paul Willen
,
Federal Reserve Bank of Boston

Abstract

This paper provides new estimates of the response of household consumption to changes in housing wealth using household-level data from the Panel Study of Income Dynamics during the 1999-2013 period. A one percent increase in housing values is associated with a 0.02-0.05 percent increase in real, non-durables consumption. These estimates elasticities are significantly smaller relative to previously published studies that have used aggregate data (Campbell and Cocco (2007) and Mian, Sufi, and Rao (2013)). In addition, consistent with findings by Kaplan, Mitman, and Violante (2015), which used data aggregated to the county-level, we do not find evidence of a collateral constraints channel driving the consumption responses to housing wealth.

Out-of-Town Home Buyers and City Welfare

Jack Favilukis
,
University of British Columbia
Stijn Van Nieuwerburgh
,
Columbia University

Abstract

The major cities of the world have attracted a flurry of out-of-town (OOT) home buyers.
Such capital inflows affect housing affordability, the spatial distribution of residents, con-
struction, labor income, wealth, and ultimately welfare. We develop a spatial equilibrium
model of a city with substantial heterogeneity among residents. We calibrate the model
to the New York and Vancouver metro areas. The observed increase in OOT purchases is
associated with 1.1% (5.0%) higher house prices and a 0.1% (0.34%) welfare loss in New
York (Vancouver). Taxing OOT buyers can turn welfare losses into gains when tax revenues
finance a local public good.

Are Asset Price Movements Driven by International Capital Flows? The Case of Emerging Markets

Joe Cho Yiu Ng
,
City University of Hong Kong
Charles Ka Yui Leung
,
City University of Hong Kong

Abstract

Large swings in developing countries’ asset price movements are often associated with volatile capital flows. This paper develops a multi-step empirical model and (a) finds that temporary components of the international capital flows (“hot money”) are important, even for the Foreign Direct Investment (FDI), (b) taking that into account, the prediction of neoclassical growth model actually holds for the FDI but not the Portfolio Investment (PI) in our cross-country sample. We also confirm that in real terms, net FDI and PI inflows are correlated with the stock and housing prices. Comparing across countries, the magnitude of the impulse responses of housing price and stock price to a hot money shock are negatively correlated to the per capita real GDP and quality-adjusted human capital index of the recipient countries.
Discussant(s)
Jinyue Li
,
City University of Hong Kong
Charles Ka Yui Leung
,
City University of Hong Kong
Shane Hsuan-Li Su
,
National Taiwan University
Chor-Yiu Sin
,
National Tsing Hua University
JEL Classifications
  • E0 - General
  • R0 - General