Working Paper: House Prices, Increasing Returns, and the Effects of Government Spending Shocks

Working Paper - December 2021 - No. 185

Authors Larsen, Rasmus Bisgaard (Danmarks Nationalbank); Ravn, Søren Hove (University of Copenhagen); Santoro, Emiliano (University of Copenhagen)
Subject Models; Public finances and fiscal policy; Other economic analyses
Type Working paper
Year 2021
Published 9 December 2021
Abstract icon We report new regional evidence indicating that U.S. house prices increase after positive shocks to fiscal spending. In sharp contrast to this, house prices fall in conventional DSGE models. We construct a model featuring endogenous firm entry and taste for variety, which can generate a positive response of house prices to fiscal spending.