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Getting at Systemic Risk via an Agent-Based Model of the Housing Market

  • John Geanakoplos
  • Robert Axtell
  • J. Doyne Farmer
  • Peter Howitt
  • Benjamin Conlee
  • Jonathan Goldstein
  • Matthew Hendrey
  • Nathan M. Palmer
  • Chun-Yi Yang

Systemic risk must include the housing market, though economists have not generally focused on it. We begin construction of an agent-based model of the housing market with individual data from Washington, DC. Twenty years of success with agent-based models of mortgage prepayments give us hope that such a model could be useful. Preliminary analysis suggests that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.53
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Pages: 53-58

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:53-58
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  1. John V. Duca & John Muellbauer & Anthony Murphy, 2011. "Shifting credit standards and the boom and bust in U.S. house prices," Working Papers 1104, Federal Reserve Bank of Dallas.
  2. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
  3. Andrew Haughwout & Donghoon Lee & Joseph Tracy & Wilbert van der Klaauw, 2011. "Real estate investors, the leverage cycle, and the housing market crisis," Staff Reports 514, Federal Reserve Bank of New York.
  4. John Geanakoplos, 2010. "The Leverage Cycle," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 1-65 National Bureau of Economic Research, Inc.
  5. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2010. "Can Cheap Credit Explain the Housing Boom?," NBER Working Papers 16230, National Bureau of Economic Research, Inc.
  6. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715R, Cowles Foundation for Research in Economics, Yale University, revised Jan 2010.
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