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Bayesian Evaluation of DSGE Models with Housing and Collateral Effects

Author

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  • Alban Moura
  • Olivier Pierrard

Abstract

Using Bayesian methods, we document that a state-of-the-art DSGE model with housing and collateral effects cannot reproduce key cyclical properties of U.S. data, particularly the volatility of U.S. house prices, the persistence of their growth rate, and their comovements with macroeconomic variables such as consumption, investment, and inflation. Two main issues are the model's inability to generate hump-shaped house-price dynamics following a shock to housing demand and the weak propagation of house-price movements to aggregate activity. We also document issues with the collateral constraint, which generates counterfactual comovements between consumption, debt, and house prices. These shortcomings raise doubts about the current specification of DSGE models with housing and collateral effects.

Suggested Citation

  • Alban Moura & Olivier Pierrard, 2024. "Bayesian Evaluation of DSGE Models with Housing and Collateral Effects," Annals of Economics and Statistics, GENES, issue 155, pages 91-124.
    • Handle: RePEc:adr:anecst:y:2024:i:155:p:91-124
    DOI: 10.2307/48795038
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    More about this item

    Keywords

    DSGE Models; Housing; Collateral Constraint; Model Evaluation; Bayesian Methods.;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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