The paper by Matteo Iacoviello and Stefano Neri examines the role of housing market fluctuations in the U.S. economy using a dynamic stochastic general equilibrium (DSGE) model. The study finds that housing market shocks, particularly those related to demand and technology, explain a significant portion of the volatility in housing investment and prices. Monetary factors also play a role, especially during the early 2000s. The research highlights that housing market spillovers are non-negligible, affecting consumption more than business investment and becoming more significant over time. The model incorporates both supply and demand-side factors, including sectoral heterogeneity and household collateral constraints. It shows that housing price changes influence borrowing capacity and investment decisions, leading to feedback effects on consumption and business investment. The study also finds that housing market fluctuations contribute to a substantial portion of the variance in consumption growth, particularly in the late 1980s and early 2000s. The model is calibrated to match key economic variables and incorporates various shocks and frictions, including nominal rigidities and financial constraints. The results suggest that housing market dynamics are an important component of business cycles, with significant implications for monetary policy and economic stability. The paper also discusses the role of different types of shocks and frictions in shaping the model's behavior, emphasizing the importance of housing in the broader economy.The paper by Matteo Iacoviello and Stefano Neri examines the role of housing market fluctuations in the U.S. economy using a dynamic stochastic general equilibrium (DSGE) model. The study finds that housing market shocks, particularly those related to demand and technology, explain a significant portion of the volatility in housing investment and prices. Monetary factors also play a role, especially during the early 2000s. The research highlights that housing market spillovers are non-negligible, affecting consumption more than business investment and becoming more significant over time. The model incorporates both supply and demand-side factors, including sectoral heterogeneity and household collateral constraints. It shows that housing price changes influence borrowing capacity and investment decisions, leading to feedback effects on consumption and business investment. The study also finds that housing market fluctuations contribute to a substantial portion of the variance in consumption growth, particularly in the late 1980s and early 2000s. The model is calibrated to match key economic variables and incorporates various shocks and frictions, including nominal rigidities and financial constraints. The results suggest that housing market dynamics are an important component of business cycles, with significant implications for monetary policy and economic stability. The paper also discusses the role of different types of shocks and frictions in shaping the model's behavior, emphasizing the importance of housing in the broader economy.