HOUSING PRICE CHANGES, GENERAL EQUILIBRIUM AND WELFARE

This paper explores the aggregate welfare effects of housing price changes in the heterogeneous agent general equilibrium model with multi-sector production side. The model includes two types of households: credit-constrained households and unconstrained households. These types differ not only because of the presence or absence of credit constraints but also from the point of view of their time preference rates and factors of production which they own. The modeling of the production side of the economy is based on Davis and Heathcote (2005) and includes a composite good production sector housing production sector and intermediate goods production sector. Besides welfare comparisons between steady states, the welfare changes during transition between steady states are also calculated.