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Complex Methods in Economics: An Example of Behavioral Heterogeneity in House Prices

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  • Bolt, W.

    (De Nederlandsche Bank)

  • Demertzis, D.

    (De Nederlandsche Bank)

  • Diks, C.G.H.

    ()
    (University of Amsterdam)

  • Van der Leij, M.J.

    ()
    (University of Amsterdam)

Abstract

We show how simple statistical techniques for capturing critical transitions used in natural sciences, fail to capture economic regime shifts. This implies that we need to use model-based approaches to identify critical transitions. We apply a heterogenous agents model in a standard housing market model to show that these family of models generate non-linear responses that can capture such transitions. We estimate this model for the United States and the Netherlands and find that first, the data does capture the heterogeneity in expectations and, second, that the qualitative predictions of such nonlinear models are very different to standard linear benchmarks. It would be important to identify which approach can serve best as an early warning indicator.

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 11-12.

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Date of creation: 2011
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Handle: RePEc:ams:ndfwpp:11-12

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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  1. Lux, Thomas, 2008. "Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey," Economics Working Papers 2008,07, Christian-Albrechts-University of Kiel, Department of Economics.
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  18. Boswijk, H.P. & Hommes C.H. & Manzan, S., 2005. "Behavioral Heterogeneity in Stock Prices," CeNDEF Working Papers 05-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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