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Boom and Burst in Housing Market with Heterogeneous Agents

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  • Alessandro Spelta

    ()
    (Department of Economics and Business, University of Pavia)

  • Guido Ascari

    ()
    (Department of Economics and Business, University of Pavia)

  • Nicolò Pecora

    ()
    (Catholic university of Piacenza)

Abstract

We study the housing market using a partial “dis”-equilibrium model in which the rational expectations hypothesis is relaxed in favor of an agent-based approach. The chartist-fundamentalist mechanism allows for the behavioral foundation of the expectations, the endogenous development of bubbles and contributes to replicate the recent house price dynamics. We also analyze the role of the interest rate during the boom and, anchoring the interest rate to the change in house price, we investigate the possibility to reduce the volatility and the distortion in the price dynamics.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q177.pdf
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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 177.

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Length: 28 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:pav:wpaper:177

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  1. Monika Piazzesi & Martin Schneider, 2009. "Momentum traders in the housing market: survey evidence and a search model," Staff Report 422, Federal Reserve Bank of Minneapolis.
  2. Klaus Adam & Albert Marcet, 2010. "Booms and Busts in Asset Prices," IMES Discussion Paper Series 10-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Sergio Rebelo & Martin Eichenbaum & Craig Burnside, 2012. "Understanding Booms and Busts in Housing Markets," 2012 Meeting Papers 114, Society for Economic Dynamics.
  4. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  5. Hanno N. Lustig & Stijn G. Van Nieuwerburgh, 2005. "Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective," Journal of Finance, American Finance Association, vol. 60(3), pages 1167-1219, 06.
  6. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  7. Klaus Adam & Albert Marcet, 2011. "Internal Rationality, Imperfect Market Knowledge and Asset Prices," CEP Discussion Papers dp1068, Centre for Economic Performance, LSE.
  8. David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Birgitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Discussion Papers 09-03, University of Copenhagen. Department of Economics.
  9. Jean-Philippe Bouchaud, 2009. "The (unfortunate) complexity of the economy," Papers 0904.0805, arXiv.org.
  10. Nicholas Barberis & Ming Huang & Tano Santos, 2001. "Prospect Theory And Asset Prices," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 1-53, February.
  11. Lengnick, Matthias & Wohltmann, Hans-Werner, 2011. "Agent-based financial markets and New Keynesian macroeconomics: A synthesis," Economics Working Papers 2011,09, Christian-Albrechts-University of Kiel, Department of Economics.
  12. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
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