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Kaldorian boom-bust cycles in the housing market

Listed author(s):
  • Ingo Barens

    (Darmstadt University of Technology)

  • Peter Flaschel

    (Bielefeld University)

  • Florian Hartmann

    ()

    (University of Osnabrück)

  • Andreas Röthig

    (Darmstadt University of Technology)

We show that the Kaldor (1940) trade cycle mechanism can be meaningfully applied to the market for residential housing space, since the demand for houses may be positively related to the housing price in a mid-range price domain, while it is downward sloping for house prices sufficiently small as well as sufficiently large. Confronted with the current supply of houses this gives rise to multiple equilibria. Then the employed nonlinear house demand schedule is coupled with backward-looking house price expectations and a planar dynamics is obtained with the same range of model-consistent expectations equilibria as in the partial situation studied beforehand. The model however is not dependent on the backward oriented expectation scheme, but also applies to the case of myopic perfect foresight. The nonlinear demand function for houses in connection with changes in the housing stock initiates sudden reversals from booms into busts and vice versa, which from a mathematical point of view give locally rise to fold catastrophes at the bifurcation points, with the dynamics being described by relaxation oscillations from the global perspective.

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File URL: http://www.elgaronline.com/view/journals/ejeep/7-2/ejeep.2010.02.11.xml
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Article provided by Edward Elgar Publishing in its journal Intervention.

Volume (Year): 7 (2010)
Issue (Month): 2 ()
Pages: 361-375

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Handle: RePEc:elg:ejeepi:v:7:y:2010:i:2:p361-375
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  1. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, pages -, March.
  2. Wynne Godley & Dimitri B. Papadimitriou & Greg Hannsgen & Gennaro Zezza, 2007. "The U.S. Economy: Is There a Way Out of the Woods?," Economics Strategic Analysis Archive sa_nov_07, Levy Economics Institute.
  3. Bernanke, Ben S., 2009. "Asia and the global financial crisis (welcome address)," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 11-12.
  4. Mark A. Wynne & Erasmus K. Kersting, 2009. "Trade, globalization and the financial crisis," Economic Letter, Federal Reserve Bank of Dallas, vol. 4(nov).
  5. Malouche, Mariem, 2009. "Trade and trade finance developments in 14 developing countries post September 2008 - a World Bank survey," Policy Research Working Paper Series 5138, The World Bank.
  6. Jorg Bibow, 2008. "The International Monetary (Non-)Order and the 'Global Capital Flows Paradox'," Economics Working Paper Archive wp_531, Levy Economics Institute.
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