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Sunspots and Self-Fulfilling Beliefs in the U.S. Housing Market

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  • Masanori Kashiwagi

    (National Taiwan University)

Abstract

This paper provides a rational expectations equilibrium framework to organize the following observations about the U.S. housing market from 1975 to 2007: (i) housing occupancy patterns were approximately constant, (ii) rents were stable, and (iii) house prices appreciated considerably in the late 1990s. I develop a model based on search and matching theory and close it by specifying a state of household confidence that is assumed to take one of two sunspot-driven values: normal or exuberant. The model generates a substantial increase in house prices and stable rents as the probability of the exuberant state increases, driven by self-fulfilling beliefs. I explore which aspects of the parameterization are important for generating a large appreciation in house prices in the model. (Copyright: Elsevier)

Suggested Citation

  • Masanori Kashiwagi, 2014. "Sunspots and Self-Fulfilling Beliefs in the U.S. Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 654-676, October.
  • Handle: RePEc:red:issued:12-172
    DOI: 10.1016/j.red.2014.01.004
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    Cited by:

    1. Gete, Pedro, 2015. "Housing demands, savings gluts and current account dynamics," Globalization and Monetary Policy Institute Working Paper 221, Federal Reserve Bank of Dallas, revised 01 Aug 2015.
    2. Leung, Charles Ka Yui & Tse, Chung-Yi, 2017. "Flipping in the housing market," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 232-263.
    3. Hintermaier, Thomas & Koeniger, Winfried, 2015. "Household Debt and Crises of Confidence," Economics Working Paper Series 1518, University of St. Gallen, School of Economics and Political Science.
    4. Kashiwagi, Masanori, 2014. "A search-theoretic model of the rental and homeownership markets," Journal of Housing Economics, Elsevier, vol. 26(C), pages 33-47.
    5. Leung, Charles Ka Yui & Tse, Chung-Yi, 2017. "Flipping the Housing Market," Globalization and Monetary Policy Institute Working Paper 301, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    House prices; Sunspots; Self-fulfilling beliefs; Search;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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