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Title:A mechanism for booms and busts in housing prices PDF Logo
Authors:Hillebrand, Marten
Kikuchi, Tomoo
Issue Date:2012
Series/Report no.:Working paper series in economics 40
Abstract:We study an exchange economy with overlapping generations of consumers who derive utility from consuming a non-durable commodity and housing. A banking sector offers loans to finance housing. We provide a complete characterization of the equilibrium dynamics which alternates between an expansive regime where housing prices increase and banks expand loans and a contractive regime associated with decreasing housing values and shrinking credit volume. Regime switches occur even under small but persistent income changes giving rise to large and recurrent booms and busts in housing prices not reflecting changes in fundamentals.
Subjects:OLG
Housing prices
Credit volume
Boom-bust scenarios
Regime switching
JEL:C62
E32
G21
Document Type:Working Paper
Appears in Collections:Working Paper Series in Economics, Karlsruher Institut für Technologie (KIT)

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