Title: Housing markets - A DSGE analysis of the German case
Authors: Chong Dae Kim - Technical University of Cologne (Germany) [presenting]
Abstract: Dynamic stochastic general equilibrium (DSGE) models have been a part of the policy making tool kits of central banks for many years. We show that the Iacoviello and Neri model, a closed economy DSGE model with a housing market, can be used as is for the German economy by comparing the results with independent historical observations and use this model to show the interaction between the German housing market and its economy. The data - the real price of housing in Germany between 1991 Q2 and 2014 Q4 - used show that housing prices have started rising significantly in 2010, as in Arhelger and Kim, the results however cannot confirm if this is due to the creation of a bubble in the German housing market. The results show that a monetary policy shock has only a short term effect on housing prices. Effects of the shock dissipate within two years of impact. Housing demand however, due to overheating in the construction sector as a result of a large amount of subsidies in the post reunification period, plays a major role in housing prices and investment, with a strong negative influence on both.