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Irrational Exuberance in the U.S. Housing Market

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Author Info

  • Christopher W. Crowe

Abstract

The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population-evangelical protestants-that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals'' focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular internet measure of "prophetic activity" and a 9/11 event study. I also analyze survey data covering religious beliefs and asset holding, and find that ''end times'' beliefs are associated with a one-third decline in net worth, consistent with these beliefs providing a form of psychic insurance (Scheve and Stasavage, 2006a and 2006b) that reduces asset demand.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/57.

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Length: 32
Date of creation: 01 Mar 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/57

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Related research

Keywords: Housing; Housing prices; Private savings; Household credit; religion; survey; correlation; protestants; statistics; religious beliefs; standard deviation; standard errors; evil; churches; empirical specification; descriptive statistics; prediction; theology; linear time trend; christians; linear time; predictions; materialism; independent variable; samples; faith; enumeration; christianity; explanatory power; statistic; equation; prophecies; religious denominations; constant term; catholics; church; time series; prayer; probability; independent variables; representative sample; eschatology; outliers; sample size;

This paper has been announced in the following NEP Reports:

References

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  1. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-99, November.
  2. Robert J. Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," NBER Working Papers 13553, National Bureau of Economic Research, Inc.
  3. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, 03.
  4. George A. Akerlof & Rachel E. Kranton, 2000. "Economics And Identity," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 715-753, August.
  5. Glaeser, Edward & Saiz, Albert & Gyourko, Joseph, 2008. "Housing Supply and Housing Bubbles," Scholarly Articles 2962640, Harvard University Department of Economics.
  6. Russett, Bruce & Slemrod, Joel, 1993. "Diminished Expectations of Nuclear War and Increased Personal Savings: Evidence from Individual Survey Data," American Economic Review, American Economic Association, vol. 83(4), pages 1022-33, September.
  7. Zheng Song & Giovanni Favara, 2009. "House Price Dynamics with Heterogeneous Expectations," 2009 Meeting Papers 775, Society for Economic Dynamics.
  8. Robert Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," Yale School of Management Working Papers amz2557, Yale School of Management, revised 01 Nov 2007.
  9. McCleary, Rachel & Barro, Robert, 2003. "Religion and Economic Growth across Countries," Scholarly Articles 3708464, Harvard University Department of Economics.
  10. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards," IMF Working Papers 08/106, International Monetary Fund.
  11. Scheve, Kenneth & Stasavage, David, 2006. "Religion and Preferences for Social Insurance," International Quarterly Journal of Political Science, now publishers, vol. 1(3), pages 255-286, July.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Bible and the price volatility
    by Economic Logician in Economic Logic on 2009-05-16 00:59:00
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Cited by:
  1. Renneboog, L.D.R. & Spaenjers, C., 2009. "Where Angels Fear to Trade: The Role of Religion in Household Finance," Discussion Paper 2009-018, Tilburg University, Tilburg Law and Economic Center.

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  1. Economic Logic blog

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