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A behavioral model of house prices

  • Madsen, Jakob B.

This paper proposes a model in which house prices are determined by economy-wide nominal income and nominal mortgage payments in the short run, while being determined by acquisition costs in the long run. The model, to a large extent, explains the 1995–2007 housing market run-up in the OECD countries by lower mortgage repayments, decreasing nominal interest rates, and increasing nominal GDP, partly induced by a large inflow of migrants. Empirical estimates give strong support for the model and suggest that it explains house prices in the OECD better than alternative models.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 82 (2012)
Issue (Month): 1 ()
Pages: 21-38

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Handle: RePEc:eee:jeborg:v:82:y:2012:i:1:p:21-38
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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