Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-18T18:53:26.409Z Has data issue: false hasContentIssue false
  • English
  • Français

The Theory of Housing and Interest Rates

Published online by Cambridge University Press:  06 April 2009

James B. Kau  and
Donald Keenan
Get access Rights & Permissions [Opens in a new window]

Extract

This paper studies the relationship between real interest rates and housing using a microeconomic approach. The primary impact of interest rates is on the demand side. The partial equilibrium, comparative static model of demand behavior presented is based on intertemporal preference maximization subject to a multiperiod income constraint. The model is always in terms of real prices and interest rates and operates in discrete time. Consumer preferences are represente by a smooth utility function which depends on two kinds of goods, housing and other nondurables. This study is couched in a neoclassical framework with all markets assumed perfect unless otherwise specified. With this approach the theory of housing and interest rates becomes part of standard consumer theory, rather than being based on inappropriate present value considerations.

Type
Competitive Paper Winners
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 4 , November 1980 , pp. 833 - 847
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Ando, A., and Modigliani, F.. “The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests.” American Economic Review, Vol. 53 (03 1963), pp. 55–84.Google Scholar
[2]Arcelus, F., and Meltzer, A. H.. “The Markets for Housing Services.” Journal of Money, Credit and Banking, Vol. 5 (02 1973), pp. 78–99.CrossRefGoogle Scholar
[3]Artle, R., and Varaiya, P.. “Life Cycle Consumption and Homeownership.” Journal of Economic Theory, Vol. 18 (1978), pp. 38–58.CrossRefGoogle Scholar
[4]Brady, E. A. “An Econometric Analysis of the U.S. Residential Housing Market.” National Housing Models, Ricks, R. B. (ed.). Lexington (1973).Google Scholar
[5]Fair, R. C.A Short-Run Forecasting Model of the United States Economy. Lexington (1971).Google Scholar
[6]Kau, J. B., and Keenan, D.. “On the Theory of Interest Rates, Consumer Durables, and the Demand for Housing.” Journal of Urban Economics, forthcoming.Google Scholar
[7]Kau, J. B.; Keenan, D.; and Sirmans, S.. “Interest and Housing.” Working paper. University of Georgia (1979).Google Scholar
[8]Kearl, J. R.; Rosen, K.; and Swan, G.. “Relationships between the Mortgage Instruments, the Demand for Housing and Mortgage Credit: A Review of Empirical Studies.” Conference Studies, No. 15, Federal Reserve Bank of Boston (1979).Google Scholar
[9]Maisel, S. J. “The Effects of Monetary Policy on Expenditures in Specific Sectors of the Economy.” Journal of Political Economy, Vol. 76, No. 2 (1968), pp. 796–814.CrossRefGoogle Scholar
[10]Meltzer, A. H. “Credit Availability and Economic Decisions: Some Evidence from the Mortgage and Housing Markets.” Journal of Finance (06 1974), pp. 763–777.CrossRefGoogle Scholar
[11]Muth, R. “The Demand for Non-Farm Housing.” In The Demand for Durable Goods, Harberger, (ed.). Chicago (1960), pp. 29–96.Google Scholar
[12]Smith, L. B. “A Model of the Canadian Housing and Mortgage Markets.” Journal of Political Economy (1969), pp. 795–816.CrossRefGoogle Scholar
[13]Swan, C. “A Quarterly Model of Housing Starts: A Disequilibrium Approach.” Working paper 39, FALB Board (1972).Google Scholar
[14]Varian, H. R.Microeconomic Analysis. New York: W. W. Norton & Co. (1978).Google Scholar