Template-type: ReDIF-Paper 1.0
Author-Name: Laurentiu Guinea
Author-Workplace-Name: Universidad Complutense de Madrid and ICAE.
Author-Name: Luis A. Puch
Author-Workplace-Name: Universidad Complutense de Madrid and ICAE.
Author-Name: Jesús Ruiz
Author-Workplace-Name: Universidad Complutense de Madrid and ICAE.
Title: News-driven housing booms: Spain vs. Germany
Abstract: In this paper 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. 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 
	frictions in labour reallocation. We find that the model calibrated for Spain displays a response to anticipated house price shocks that stimulate residential 
	investment, whereas for Germany those shocks enhance investment in equipment and structures. The results stress that the propagation mechanism of anticipated shocks 
	to future investment is consistent with the housing booms in Spain.
Classification-JEL: C32, D84, E22, E32.
Keywords: Investment-specifi technical change; News shocks; Housing booms; Wealth eff.
Length: 77 pages 
Creation-Date: 2019-09
Number: 2019-32
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1932.txt
File-URL: https://eprints.ucm.es/id/eprint/57343/1/1932.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1932