Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203547
Authors: 
Baur, Dirk
Year of Publication: 
2019
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Political Economy I No. B12-V2
Abstract: 
This paper uses a simple model based on the board game Monopoly to analyze the drivers of house prices and wealth inequality. Simulations show that inequality generally builds up fast even if players have equal starting conditions and house prices are stable; rising house prices imply more extreme inequality. An extension of the classical game with interest rates and debt-financing further shows that low interest rates facilitate a property carry trade and increase house prices and inequality by more than high interest rates. The simulations also demonstrate a first-mover advantage both within a generation and between generations and the non-exogenous nature of wealth accumulation, i.e. without new money owing into the housing market, house prices do not go up and wealth differences are less extreme. Overall, despite the model's simplicity it presents striking similarities with empirical evidence.
Subjects: 
house prices
debt
inequality
monetary policy
board game Monopoly
Cantillon effect
Ponzi scheme
JEL: 
D10
D31
D42
D63
E47
E58
R30
Document Type: 
Conference Paper

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