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José-Víctor Ríos-Rull, Virginia Sánchez-Marcos, An Aggregate Economy with Different Size Houses, Journal of the European Economic Association, Volume 6, Issue 2-3, 1 May 2008, Pages 705–714, https://doi.org/10.1162/JEEA.2008.6.2-3.705
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Abstract
We build an aggregate model with different size houses and liquid assets. Typical households are born, are subject to idiosyncratic earnings risk, and save for both life-cycle reasons and housing reasons. Typically, a subset of these households, after accumulating some assets, make a down payment and buy a small starter's house or flat. As time passes, some households upgrade to a larger and nicer house. Households with houses may also eventually downgrade to a flat or even to no house and flat owners may sell. Our specification attempts to replicate some important features of modern aggregate economies: The distribution of earnings and of housing and non-housing wealth as well as some macroeconomic aggregates, including features of the mortgage issuing sector.