Literature review for AB and PO

I think I should structure the review into two sections:

1. Quantitative housing models

   • Favilukis -> KMV -> Graham
   • Easy to link these papers

2. What we know about investors

   • Cross-sectional studies: Haughwout, Bhutta
   • IV studies: Gao, Garcia
   • (?) Mian-Sufi (2019)

Model

For my next meeting with ABPO, I think I should write down the household’s decision problems, along the lines of Graham (2019)/Hu (as in my recent email to myself). Be clear about why I need all these features (e.g. long-term mortgages) and how my model differs from others. Also, when I write down the model, I should be very specific about differences from other models. I should also sketch out the elements of the supply-side, but this can be brief.

I’m still not sure how to incorporate beliefs and map the model to the PSID. One thought I had was that I could simply incorporate a KMV-style “belief shock”, but possibly with two levels: optimistic and more optimistic. Then somehow get the model to match the observed increase in investor activity (across the income distribution?). Then I could simply use the model to test the efficacy of policies that would have restricted investor purchases. In this sense the paper would be more about “managing the boom” rather than quantifying the underlying causes…