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International capital flows and expectation-driven boom-bust cycles in the housing market

  • Tomura, Hajime

This paper analyzes the roles of credit market conditions in endogenous formation of housing-market boom-bust cycles in a business cycle model. When households are uncertain about the duration of a temporary high income growth period, expected future house prices rise during the high growth period and fall at the end of the period. But this development causes expectation-driven boom-bust cycles in current house prices only if the economy is open to international capital flows. It is also shown that high maximum loan-to-value ratios for residential mortgages per se do not cause boom-bust cycles without international capital flows in the model.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 10 (October)
Pages: 1993-2009

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:10:p:1993-2009
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Benito, Andrew & Mumtaz, Haroon, 2009. "Excess Sensitivity, Liquidity Constraints, And The Collateral Role Of Housing," Macroeconomic Dynamics, Cambridge University Press, vol. 13(03), pages 305-326, June.
  2. 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.
  3. Hajime Tomura, 2009. "Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy," Staff Working Papers 09-15, Bank of Canada.
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  8. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  9. Joseph Zeira, 2000. "Informational overshooting, booms and crashes," Proceedings, Federal Reserve Bank of San Francisco, issue Apr.
  10. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
  11. Aizenman, Joshua & Jinjarak, Yothin, 2008. "Current account patterns and national real estate markets," Santa Cruz Department of Economics, Working Paper Series qt1rh4s127, Department of Economics, UC Santa Cruz.
  12. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  13. Nir Jaimovich & Sergio Rebelo, 2007. "News and Business Cycles in Open Economies," NBER Working Papers 13444, National Bureau of Economic Research, Inc.
  14. Thomas Lubik & Wing Teo, 2005. "Do World Shocks Drive Domestic Business Cycles? Some Evidence from Structural Estimation," Economics Working Paper Archive 522, The Johns Hopkins University,Department of Economics.
  15. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," 2006 Meeting Papers 31, Society for Economic Dynamics.
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  18. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
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