Housing Cycles and Consumption in Emerging-Market Economies *

The estimation results of structural VARs show that, in comparison with dynamic responses of real consumption with respect to a stochastic trend shock, dynamic responses of real house prices in emerging-market countries are smaller than in advanced countries. For example, the ratio of the initial impulse response of the real estate price to that of consumption is lower in emerging countries than in advanced countries. A DSGE model is analyzed to account for the observed difference between advanced and emerging-market countries. The model’s simulation results indicate that higher equity shares required for mortgage loans and higher fraction of financially-constrained households in emerging-market countries help explain the difference in the estimation results described above.