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Title:Trend growth expectations and US house prices before and after the crisis PDF Logo
Authors:Hoffmann, Mathias
Krause, Michael U.
Laubach, Thomas
Issue Date:2012
Series/Report no.:Discussion Paper, Deutsche Bundesbank 12/2012
Abstract:We provide an analysis that might help distinguish rationally justified movements in house prices from potentially non-rational movements, using a two-sector business cycle model, in which investment in housing is subject to collateral constraints. A large portion of the evolution of U.S. house prices during the past 20 years can be reproduced when expectations of future income growth as published in surveys are used as an input into the model. Changes in growth expectations translate into corresponding changes in house prices, since the value of housing must be linked to expected aggregate income. Only since about 2005 do actual and model-implied house prices clearly diverge, calling for explanations not based on economic fundamentals.
Subjects:House prices
trend growth
Kalman filter
real-time data
borrowing constraints
JEL:E13
E32
D83
O40
ISBN:978-3-86558-813-5
Document Type:Working Paper
Appears in Collections:Discussion Papers, Deutsche Bundesbank

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