Working Paper: House Prices, Increasing Returns, and the Effects of Government Spending Shocks
Working Paper - December 2021 - No. 185
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.