Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202660 
Authors: 
Year of Publication: 
2014
Series/Report no.: 
Birmingham Business School Discussion Paper Series No. 2014-04
Publisher: 
University of Birmingham, Birmingham Business School, Birmingham
Abstract: 
The paper presents a model of housing and credit cycles featuring distorted beliefs and comovement and mutual reinforcement between house price expectations and price developments via credit expansion/contraction. Positive (negative) development in house prices fuels optimism (pessimism) and credit expansion (contraction), which in turn boost (dampen) housing demand and house prices and reinforce agents' optimism (pessimism). Bayesian learning about house prices can endogenously generate self-reinforcing booms and busts in house prices and significantly strengthen the role of collateral constraints in aggregate fluctuations. The model can quantitatively account for the 2001-2008 U.S. boom-bust cycle in house prices and associated household debt and consumption dynamics. It also demonstrates that allowing for imperfect knowledge of agents, a higher leveraged economy is more prone to self-reinforcing fluctuations.
Subjects: 
Boom-Bust
Collateral Constraints
Learning
Leverage
Housing
JEL: 
D83
D84
E32
E44
URL of the first edition: 
Creative Commons License: 
cc-by-nc-sa Logo
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.