Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191903
Authors: 
Martin, Carolin
Schmitt, Noemi
Westerhoff, Frank
Year of Publication: 
2019
Series/Report no.: 
BERG Working Paper Series 142
Abstract: 
Based on a behavioral stock-flow housing market model in which the expectation formation behavior of boundedly rational and heterogeneous investors may generate endogenous boom-bust cycles, we explore whether central banks can stabilize housing markets via the interest rate. Using a mix of analytical and numerical tools, we find that the ability of central banks to tame housing markets by increasing the base (target) interest rate, thereby softening the demand pressure on house prices, is rather limited. However, central banks can greatly improve the stability of housing markets by following an interest rate rule that adjusts the interest rate with respect to mispricing in the housing market.
Subjects: 
housing markets
heterogeneous expectations
variance beliefs
endogenous boom-bust cycles
interest rates
nonlinear dynamics
JEL: 
D91
E58
R31
ISBN: 
978-3-943153-63-7
Document Type: 
Working Paper

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