Housing price changes, general equilibrium and welfare

This paper explores in detail individual as well as aggregate welfare effects of housing price changes and the effects of housing price changes on non-durable consumption and housing in the framework of heterogeneous agent general equilibrium model with multi-sector production side. First of all, the model includes two types of households: the creditconstrained ones and the unconstrained ones. These types differ not only because of the presence or absence of credit constraints, but also according to the structure of the factors of production that they possess. The modeling of the production side of the economy is based on Davis and Heathcote (2005) and includes an intermediate good production sector, a composite consumption good production sector, residential investment good production sector and housing good production sector. Besides welfare comparisons between steady states, the welfare changes during transition between steady states are also calculated. Finally, the model is used to explore the implications of the shocks corresponding to the ones observed in the US economy over the period 1991-2009.