Abstract

This paper introduces an asset pricing model with housing and explores properties of an asset pricing kernel using housing service as a numeraire in an OLG economy. When there is non-separable utility over consumption goods and housing services, the model generates not only the new type of risk known as composition risk, but also a new type of pricing kernel. This paper derives this novel pricing kernel using housing service as the numeraire and studies its property by exploring its relationship with the standard pricing kernel, which uses consumption as the numeraire. A simulation result for steady state asset prices exhibits a certain interrelationship among many consumer parameters in asset pricing with housing.

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