A DSGE Model of the Russian Residential Real Estate Market

Abstract

The paper develops a dynamic stochastic general equilibrium (DSGE) model of the Russian economy based on an endogenous housing sector and three categories of homeowners – patient, impatient and non-Ricardian. The DSGE model is applied from the first quarter of 2010 to the fourth quarter of 2019 using a Bayesian method for minimizing the discrepancy between theoretical and empirical impulse responses to a shock due to modified terms of trade. The model is then employed to provide a quantitative assessment of how macro variables respond to shocks generated by the housing market, interest rates, mortgage subsidies, financial liberalization, and altered terms of trade. At the same time, the impact of shocks on a number of economic indicators is largely determined by the functional form of household utility, as demonstrated by the robustness test. The results obtained based on the model also do not demonstrate a strong inertial effect in the economy due to the revival of the residential real estate construction sector, and they contradict a number of studies and expert estimates based primarily on the input-output model. One reason for this discrepancy may be the analysis, which is based on a horizontal supply curve, resulting in an overestimation of the impact of the construction sector on the economy. This DSGE model can serve as a starting point for scenario-based projections of the dynamics of the residential real estate market and the associated mortgage market, for testing the impact of various policy measures on the housing sector, and for assessing their effects on various categories of households.