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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. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sérgio, 2011. "Understanding Booms and Busts in Housing Markets," CEPR Discussion Papers 8232, C.E.P.R. Discussion Papers.
  2. 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.
  3. 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.
  4. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
  5. David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Brigitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Middlebury College Working Paper Series 0901, Middlebury College, Department of Economics.
  6. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-11, May.
  7. Hanno Lustig & Stijn Van Nieuwerburgh, 2003. "Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perpective," NBER Working Papers 9959, National Bureau of Economic Research, Inc.
  8. Klaus Adam & Albert Marcet, 2011. "Internal Rationality, Imperfect Market Knowledge and Asset Prices," CEP Discussion Papers dp1068, Centre for Economic Performance, LSE.
  9. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  10. Lengnick, Matthias & Wohltmann, Hans-Werner, 2010. "Agent-based financial markets and New Keynesian macroeconomics: A synthesis," Economics Working Papers 2010,10, Christian-Albrechts-University of Kiel, Department of Economics.
  11. Jean-Philippe Bouchaud, 2009. "The (unfortunate) complexity of the economy," Papers 0904.0805, arXiv.org.
  12. Klaus Adam & Albert Marcet, 2011. "Booms and Busts in Asset Prices," CEP Discussion Papers dp1059, Centre for Economic Performance, LSE.
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