Heterogeneous beliefs and housing-market boom-bust cycles

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper presents a business cycle model capturing the stylized features of housing-market boom-bust cycles in developed countries. The model implies that over-optimism of mortgage borrowers generates housing-market boom-bust cycles, if mortgage borrowers are credit-constrained and savers do not share their optimism. This result holds without price stickiness. If price stickiness is introduced into the model, then the model replicates a low policy interest rate during a housing boom as an endogenous reaction to a low inflation rate, given a Taylor rule. Thus, monetary easing observed during housing booms are consistent with the presence of over-optimism causing boom-bust cycles.

Original languageEnglish
Pages (from-to)735-755
Number of pages21
JournalJournal of Economic Dynamics and Control
Volume37
Issue number4
DOIs
Publication statusPublished - 2013 Apr
Externally publishedYes

Fingerprint

Cycle
Business Cycles
Interest Rates
Model
Inflation
Imply
Beliefs
Market
Optimism
Housing market
Heterogeneous beliefs
Industry
Price stickiness
Mortgages
Interest rate policy
Business cycle model
Inflation rate
Credit
Taylor rule
Developed countries

Keywords

  • Asset price bubbles
  • Credit constraints
  • Financial liberalization
  • House prices
  • Monetary policy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

Cite this

Heterogeneous beliefs and housing-market boom-bust cycles. / Tomura, Hajime.

In: Journal of Economic Dynamics and Control, Vol. 37, No. 4, 04.2013, p. 735-755.

Research output: Contribution to journalArticle

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