News-driven housing boomsSpain vs. Germany

  1. Laurentiu Guinea 1
  2. Luis A. Puch 1
  3. Jesús Ruiz 1
  1. 1 Universidad Complutense de Madrid

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Year of publication: 2019

Issue: 32

Pages: 1-77

Type: Working paper

More publications in: Documentos de Trabajo (ICAE)


In this paper we investigate how the economy responds to anticipated (news) shocks to future investment decisions. Using structural vector autoregressions (SVARs), we show that news about the future relative price of residential investment explains a high fraction of the variance of output, aggregate investment and residential investment for Spain. In contrast, for Germany it is the news shocks on business structures and equipment that explain a higher fraction of the variance of output, consumption and non-residential investment. To interpret our empirical findings we propose a stylized two-sector model of the willingness to substitute current consumption for future investment in housing, structures or equipment. The model combines a wealth effect driven by the expectation of rising house prices, with frictions in labour reallocation. We find that the model calibrated for Spain displays a response to anticipated house price shocks that stimulate residential investment, whereas for Germany those shocks enhance investment in equipment and structures. The results stress that the propagation mechanism of anticipated shocks to future investment is consistent with the housing booms in Spain.

Funding information

Spanish Ministerio de Economía y Competitividad (grant ECO2016-76818) for financial support


Bibliographic References

  • Akin, O., García-Montalvo, J., García-Villar, J., Peydró, J.-L. and Raya, J.-M. The real estate and credit bubble: evidence from Spain. SERIEs, volume 5(2-3), pages 223–243, 2014.
  • Almunia, M., Antràs, P., Lopez-Rodriguez, D. and Morales, E. Venting Out: Exports during a Domestic Slump, 2019. Unpublished Manuscript.
  • Angeletos, G.-M., Collard, F. and Dellas, H. Business Cycle Anatomy, 2019. Unpublished Manuscript.
  • Arouba, S. B., Elul, R. and Kalemli ´’Ozcan, S. How Big is the Wealth Effect? Decomposing the Response of Consumption to House Prices, 2018. Unpublished Manuscript.
  • Aspachs-Bracons, O. and Rabanal, P. The Drivers of Housing Cycles in Spain. IMF Working Paper , volume WP/09/203, 2009.
  • Barsky, R. B. and Sims, E. R. News shocks and business cycles. Journal of Monetary Economics, volume 58(3), pages 273 – 289, 2011. ISSN 0304-3932.
  • Bauer, A. and King, I. The Hartz reforms, the German Miracle, and labor reallocation. European Economic Review, volume 103, pages 1–17, 2018.
  • Beaudry, P. and Lucke, B. Letting different views about business cycles compete. In NBER Macroeconomics Annual 2009, Volume 24 , pages 413–455. National Bureau of Economic Research, Inc, 2010.
  • Beaudry, P. and Portier, F. An exploration into Pigou’s theory of cycles. Journal of Monetary Economics, volume 51(6), pages 1183 – 1216, 2004. ISSN 0304-3932.
  • Beaudry, P. and Portier, F. News-Driven Business Cycles: Insights and Challenges. Journal of Economic Literature, volume 52(4), pages 993–1074, 2014.
  • Beaudry, P. and Portier, F. Stock Prices, News, and Economic Fluctuations. American Economic Review, volume 96(4), pages 1293–1307, 2006.
  • Ben Zeev, N. and Khan, H. Investment-Specific News Shocks and U.S. Business Cycles. Journal of Money, Credit and Banking, volume 47(7), pages 1443–1464, 2015. ISSN 1538-4616.
  • Ben Zeev, N. What can we learn about news shocks from the late 1990s and early 2000s boom-bust period? Journal of Economic Dynamics and Control, volume 87(C), pages 94–105, 2018.
  • Benhabib, J., Rogerson, R. and Wright, R. Homework in Macroeconomics: Household Production and Aggregate Fluctuations. Journal of Political Economy, volume 99(6), pages 1166–87, 1991.
  • Bentolila, S., Cahuc, P., Dolado, J. J. and Le Barbanchon, T. Two-Tier Labour Markets in the Great Recession: France Versus Spain. The Economic Journal, volume 122(562), pages F155–F187, 2012. ISSN 0013-0133.
  • Berger, D., Guerrieri, V., Lorenzoni, G. and Vavra, J. House Prices and Consumer Spending. Review of Economic Studies, volume 10(2), pages 250–274, 2018.
  • Bradley, J. and Kügler, A. Labor market reforms: An evaluation of the Hartz policies in Germany. European Economic Review, volume 113, pages 108–135, 2019.
  • Caldara, D., Fuentes-Albero, C., Gilchrist, S. and Zakrajsek, E. ˘ The macroeconomic impact of financial and uncertainty shocks. European Economic Review, volume 88, pages 185–207, 2016.
  • Canova, F., López-Salido, D. and Michelacci, C. The effects of technology shocks on hours and output: a robustness analysis. Journal of Applied Econometrics, volume 25(5), pages 755–773, 2007.
  • Christiano, L., Motto, R. and Rostagno, M. Shocks, structures or monetary policies? The Euro Area and US after 2001. Journal of Economic Dynamics and Control, volume 32(8), pages 2476–2506, 2008.
  • Díaz, A. and Franjo, L. Capital goods, measured TFP and growth: The case of Spain. European Economic Review, volume 83(C), pages 19–39, 2016.
  • Díaz, A. and Luengo-Prado, M. J. On the user cost and homeownership. Review of Economic Dynamics, volume 11(3), pages 584 – 613, 2008. ISSN 1094-2025.
  • Díaz-Giménez, J. and Puch, L. Borrowing constraints in economies with household capital and banking: an application to the Spanish housing market (1982-1988). Investigaciones Economícas, volume 22(3), pages 469–499, 1998.
  • Fernández-Villaverde, J. and Ohanian, L. The Spanish Crisis from a Global Perspective. Working Papers 2010-03, FEDEA, 2010.
  • Fisher, J. D. Relative prices, complementarities and comovement among components of aggregate expenditures. Journal of Monetary Economics, volume 39(3), pages 449 – 474, 1997. ISSN 0304-3932.
  • Fisher, J. The Dynamic Effects of Neutral and Investment-Specific Technology Shocks. Journal of Political Economy, volume 114(3), pages 413–451, 2006. ISSN 00223808, 1537534X.
  • Forni, M., Gambetti, L. and Sala, L. No News in Business Cycles. Economic Journal, volume 124(581), pages 1168–1191, 2014.
  • Fujiwara, I., Hirose, Y. and Shintani, M. Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach. Journal of Money, Credit and Banking, volume 43(1), pages 1–29, 2011. ISSN 00222879, 15384616.
  • Gómez-Gónzalez, P. and Rees, D. M. Same Spain, less pain? European Economic Review, volume 110, pages 78–107, 2018.
  • Greenwood, J. and Hercowitz, Z. The Allocation of Capital and Time over the Business Cycle. Journal of Political Economy, volume 99(6), pages 1188–214, 1991.
  • Greenwood, J., Hercowitz, Z. and Huffman, G. W. Investment, Capacity Utilization, and the Real Business Cycle. The American Economic Review, volume 78(3), page 402, 1988.
  • Greenwood, J., Hercowitz, Z. and Krusell, P. Long-run implications of investment-specific technological change. The American Economic Review, volume 87(3), pages 342–362, 1997.
  • Guerrieri, C. and Mendicino, C. Wealth effects in the euro area, 2018. ECB Working Paper #2157.
  • Huo, Z. and Ríos-Rull, J. V. Demand Induced Fluctuations, 2019. Unpublished Manuscript.
  • Inklaar, R., Timmer, M. P. and van Ark, B. Market Services Productivity across Europe and the US, pages 141–194. Wiley-Blackwell, 2009. ISBN 9781444306699.
  • Jaimovich, N. and Rebelo, S. Can News about the Future Drive the Business Cycle? American Economic Review, volume 99(4), pages 1097–1118, 2009.
  • Kaplan, G., Mitman, K. and Violante, G. The Housing Boom and Bust: Model meets Evidence. Journal of Political Economy, 2019.
  • Khan, H. and Tsoukalas, J. The Quantitative Importance of News Shocks in Estimated DSGE Models. Journal of Money, Credit and Banking, volume 44(8), pages 1535–1561, 2012.
  • King, R., Plosser, C. and Rebelo, S. Production, growth and business cycles: I. The basic neoclassical model. Journal of Monetary Economics, volume 21(2-3), pages 195–232, 1988.
  • Kurmann, A. and Otrok, C. News Shocks and the Slope of the Term Structure of Interest Rates. American Economic Review, volume 103(6), pages 2612–32, 2013.
  • McGrattan, E., Rogerson, R. and Wright, R. An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy. International Economic Review, volume 38(2), pages 267–90, 1997.
  • OECD. Economic outlook, analysis and forecasts: Focus on house prices. OECD Economic Outlook , 2014.
  • O’Mahony, M. and Timmer, M. P. Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database*. The Economic Journal, volume 119(538), pages 374–403, 2008.
  • Schmitt-Grohé, S. and Uribe, M. Closing small open economy models. Journal of International Economics, volume 61(1), pages 163–185, 2003.
  • Schmitt-Grohé, S. and Uribe, M. What’s News in Business Cycles. Econometrica, volume 80(6), pages 2733–2764, 2012.
  • Uhlig, H. Do Technology Shocks Lead to a Fall in Total Hours Worked? Journal of the European Economic Association, volume 2(2-3), pages 361–371, 2004a.
  • Uhlig, H. What moves GNP? Econometric Society 2004 North American Winter Meetings 636, Econometric Society, 2004b.
  • Van Ark, B., O’Mahoney, M. and Timmer, M. P. The Productivity Gap between Europe and the United States: Trends and Causes. Journal of Economic Perspectives, volume 22(1), pages 25–44, 2008.