Dynamics of Housing Prices and Economic Fluctuations in Iran with the Approach of Dynamic Stochastic General Equilibrium (DSGE)

This paper studies the relationship between housing prices and business cycles in Iran. Since housing has a dual nature, that is, both private and capital nature, it can play an important role in investment costs and economic growth and incite other manufacturing sectors in the country. In this paper, housing prices and business cycles have been used to measure housing as a collateral, which is included in corporate credit constraints as well as a shock based on observations in housing price fluctuations. In order to investigate the relationship between housing prices, investment and economic fluctuations in Iran, seasonal data for the period 1991-2016 was used. To evaluate this dynamic, a dynamic stochastic general equilibrium model has been used. The results show a movement between housing prices and business investments influenced by the dynamics of housing prices in the macroeconomic. The results also indicate that the inclusion of housing prices as a collateral could be a factor in increasing the asset value of firms and, consequently, borrowings and future investments that lead to a move between housing prices and Investment and economic fluctuations in the country.