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Housing Bubbles

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  • Óscar Arce
  • David López-Salido

Abstract

We use the notion of a housing bubble as an equilibrium in which some investors hold houses for resale purposes only and not with the expectation of receiving a dividend, either in the form of rent or utility. We show that an economy with looser collateral constraints is less prone to bubbles, which, in turn, have smaller size, but are more fragile in the face of credit-crunch shocks. Our environment also allows for the existence of pure bubbles on unproductive assets. We find that multiple equilibria, in which the economy moves endogenously from a pure bubble to a housing bubble and vice versa, are possible. (JEL G12, R21, R31)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.1.212
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 1 (January)
Pages: 212-41

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:1:p:212-41

Note: DOI: 10.1257/mac.3.1.212
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References

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  1. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, 03.
  2. Maurice Obstfeld & Kenneth Rogoff, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," NBER Working Papers 0855, National Bureau of Economic Research, Inc.
  3. Alberto Martin, 2010. "Economic Growth with Bubbles," 2010 Meeting Papers 788, Society for Economic Dynamics.
  4. Boyan Jovanovic, 2007. "Bubbles in Prices of Exhaustible Resources," NBER Working Papers 13320, National Bureau of Economic Research, Inc.
  5. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  6. Jaume Ventura, 2002. "Bubbles and Capital Flows," NBER Working Papers 9304, National Bureau of Economic Research, Inc.
  7. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  8. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006. "Bubbles and capital flow volatility: Causes and risk management," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 35-53, January.
  9. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
  10. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
  11. Jesus Fernández-Villaverde & Dirk Krueger, 2007. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 552-565, August.
  12. Sven Rady, 2001. "Housing Market Dynamics: on the Contribution of Income Shocks and Credit Constraints," FMG Discussion Papers dp375, Financial Markets Group.
  13. Jeremy C. Stein, 1993. "Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects," NBER Working Papers 4373, National Bureau of Economic Research, Inc.
  14. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
  15. S. Rao Aiyagari, 1987. "Equilibrium existence in an overlapping generations model with altruistic preferences," Working Papers 356, Federal Reserve Bank of Minneapolis.
  16. Ricardo J. Caballero & Emmanuel Farhi & Mohamad L. Hammour, 2006. "Speculative Growth: Hints from the U.S. Economy," American Economic Review, American Economic Association, vol. 96(4), pages 1159-1192, September.
  17. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  18. Donald R. Haurin & Patric H. Hendershott & Susan M. Wachter, 1996. "Borrowing Constraints and the Tenure Choice of Young Households," NBER Working Papers 5630, National Bureau of Economic Research, Inc.
  19. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  20. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2007. " Winners and Losers in Housing Markets," CDMA Conference Paper Series 0705, Centre for Dynamic Macroeconomic Analysis.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How can housing bubbles happen?
    by Economic Logician in Economic Logic on 2008-08-18 14:16:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Luisa Lambertini & Caterina Mendicino & Maria Teresa Punzi, 2010. "Expectations-driven cycles in the housing market," Banco de Espa�a Working Papers 1021, Banco de Espa�a.
  2. Oscar Arce & Jose Manuel Campa & Angel Gavilan, 2012. "Macroeconomic Adjustment under Loose Financing Conditions in the Construction Sector," Working Papers 1226, BBVA Bank, Economic Research Department.
  3. Yu Zhu & Randall Wright & Chao He, 2013. "Housing and Liquidity," 2013 Meeting Papers 168, Society for Economic Dynamics.
  4. Juan S Mora-Sanguinetti & Margarita Rubio, 2013. "Recent Reforms in Spanish Housing Markets: An Evaluation using a DSGE Model," Discussion Papers 2013/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  5. Brueckner, Jan K. & Calem, Paul S. & Nakamura, Leonard I., 2012. "Subprime mortgages and the housing bubble," Journal of Urban Economics, Elsevier, vol. 71(2), pages 230-243.
  6. Basco, Sergi, 2014. "Globalization and financial development: A model of the Dot-Com and the Housing Bubbles," Journal of International Economics, Elsevier, vol. 92(1), pages 78-94.
  7. Fernando Ferreira & Joseph Gyourko, 2011. "Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," NBER Working Papers 17374, National Bureau of Economic Research, Inc.

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  1. Economic Logic blog

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