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How well do DSGE models with real estate and collateral constraints fit the data?

Author

Listed:
  • Alban Moura

    (Banque centrale du Luxembourg, Département Economie et Recherche)

  • Olivier Pierrard

    (Banque centrale du Luxembourg, Département Economie et Recherche)

Abstract

Not so well. We reach this conclusion by evaluating the empirical performance of a benchmark DSGE model with real estate and collateral constraints. We estimate the model from U.S. data using Bayesian methods and assess its fit along various dimensions. We find that the model is strongly rejected when tested against unrestricted Bayesian VARs and cannot replicate the persistence of real estate prices and various comovements between aggregate demand, real estate prices, and debt. Performance does not improve with alternative definitions of real estate prices, estimation samples, or detrending approaches. Our results raise doubts about the ability of current DSGE models with real estate and collateral constraints to deliver credible policy insights and identify the dimensions in need of improvement.

Suggested Citation

  • Alban Moura & Olivier Pierrard, 2023. "How well do DSGE models with real estate and collateral constraints fit the data?," LIDAM Discussion Papers IRES 2023007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2023007
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    More about this item

    Keywords

    real estate; housing; DSGE models; collateral constraints; model evaluation;
    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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