Homework in Monetary Economics: Inflation, Home Production, and the Production of Homes / S. Boragan Aruoba, Morris A. Davis, Randall Wright.

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Aruoba, S. Boragan

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w18276.Publication details: Cambridge, Mass. National Bureau of Economic Research 2012.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We study models incorporating money, household production, and investment in housing. Inflation, as a tax on market activity, encourages substitution into household production, and thus investment in household capital. Hence, inflation increases the (appropriately deflated) value of the housing stock. This is documented in various data sources. A calibrated model accounts for a fifth to a half of the observed relationships. While this leaves much to be explained, it demonstrates the channel is economically relevant. We also show models with home production imply higher costs of inflation than models without it, especially when home and market goods are close substitutes.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w18276 (Browse shelf(Opens below))	Not For Loan

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August 2012.

We study models incorporating money, household production, and investment in housing. Inflation, as a tax on market activity, encourages substitution into household production, and thus investment in household capital. Hence, inflation increases the (appropriately deflated) value of the housing stock. This is documented in various data sources. A calibrated model accounts for a fifth to a half of the observed relationships. While this leaves much to be explained, it demonstrates the channel is economically relevant. We also show models with home production imply higher costs of inflation than models without it, especially when home and market goods are close substitutes.