Rental market and macroeconomics: evidence for the US

Abstract

Purpose The aim of this paper is to assess whether the inclusion of the rental housing market affect the dynamics of the real business cycles (RBCs). Design/methodology/approach For this investigation, the authors model and estimate two dynamic stochastic general equilibrium (DSGE) versions for the US economy, one with and one without the presence of residential rent. Findings The findings provide evidence that the inclusion of the rental housing market can improve the assessment of public policies and the projection of scenarios in the face of sudden macroeconomic shocks. The addition of this secondary housing market augments the effect of total factor productivity (TFP) shock on output and consumption. In addition, it increases the effect of the credit shock on the demand for housing. The latter highlights the role of credit for the real estate market. Therefore, the authors recommend that analysts and macro-prudential authorities consider adding it to their models. Originality/value The findings provide evidence that the inclusion of the rental housing market can improve the assessment of public policies and the projection of scenarios in the face of sudden macroeconomic shocks.