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Expectations-Driven Cycles in the Housing Market

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  • Mendicino, Caterina
  • Lambertini, Luisa
  • Punzi, Maria Teresa

Abstract

This paper analyzes housing market boom-bust cycles driven by changes in households'expectations. We explore the role of expectations not only on productivity but on several other shocks that originate in the housing market, the credit market and the conduct of monetary policy. We find that, in the presence of nominal rigidities, expectations on both the conduct of monetary policy and future productivity can generate housing market boom-bust cycles in accordance with the empirical findings. Moreover, expectations of either a future reduction in the policy rate or a temporary increase in the central bank's inflation target that are not fulfilled generate a macroeconomic recession. Increased access to credit generates a boom-bust cycle in most variables only if it is expected to be reversed in the near future.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20776.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:20776

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Keywords: Credit Frictions; Boom-Bust Cycles; News Shocks; Housing Prices.;

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Citations

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Cited by:
  1. Caterina Mendicino & Maria Teresa Punzi, 2011. "Boom-bust cycles and stabilisation policy - monetary and macroprudential rules: a loss function approach," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential regulation and policy, volume 60, pages 58-65 Bank for International Settlements.
  2. Lambertini, Luisa & Mendicino, Caterina & Teresa Punzi, Maria, 2013. "Leaning against boom–bust cycles in credit and housing prices," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(8), pages 1500-1522.
  3. Caterina Mendicino, 2009. "Monetary Policy Expectations and Boom-Bust Cycles in the Housing Market," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.
  4. 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.
  5. Jan Bruha & Michal Hlavacek & Lubos Komarek, 2013. "Impacts of housing prices on the financial position of households," Occasional Publications - Chapters in Edited Volumes, Czech National Bank, Research Department, in: CNB Financial Stability Report 2012/2013, chapter 0, pages 120-127 Czech National Bank, Research Department.
  6. Caterina Mendicino & Maria Tereza Punzi, 2013. "Confidence and economic activity: the case of Portugal," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.
  7. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  8. F. Verona & M. M. F. Martins & I. Drumond, 2013. "(Un)anticipated Monetary Policy in a DSGE Model with a Shadow Banking System," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 78-124, September.
  9. Sandra Gomes & Caterina Mendicino, 2011. "Housing Market Dynamics: Any News?," Working Papers, Banco de Portugal, Economics and Research Department w201121, Banco de Portugal, Economics and Research Department.
  10. Caterina Mendicino & Maria Tereza Punzi, 2011. "Stabilization Policy and Boom-Bust Cycles - Monetary and Macro-Prudential Rules," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.

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