Really surprised that there is no evidence of boom-bust asymmetry here. I am going to have to dig into what reasonable alternatives are and how much power they have here: Adam M. Guren, Alisdair McKay, Emi Nakamura, and Jon Steinsson: Housing Wealth Effects: The long View: "We exploit systematic differences in city-level exposure to regional house price cycles...
...Our main findings are that: 1) Large housing wealth effects are not new: we estimate substantial effects back to the mid 1980s; 2) Housing wealth effects were not particularly large in the 2000s; if anything, they were larger prior to 2000; and 3) There is no evidence of a boom-bust asymmetry. We compare these findings to the implications of a standard life-cycle model with borrowing constraints, uninsurable income risk, illiquid housing, and long-term mortgages. The model explains our empirical findings about the insensitivity of the housing wealth effects to changes in the loan-to-value (LTV) distribution, including the dramatic rise in LTVs in the Great Recession. The insensitivity arises in the model for two reasons. First, impatient low-LTV agents have a high elasticity. Second, a rightward shift in the LTV distribution increases not only the number of highly sensitive constrained agents but also the number of underwater agents whose consumption is insensitive to house prices...
#noted #macro #finance
