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Does large volatility help?—stochastic population forecasting technology in explaining real estate price process

  • Yuan Cheng
  • Xuehui Han


This paper investigates the association between real estate demand and the volatility of population changes. In a financial liberalized housing market, the housing mortgage loan implies insurance function to homeowners through the default option. Larger expected volatilities in the population imply a higher value of the default option. When analyzing the impact of the long-term population development on housing prices, the traditional deterministic population forecasting employed by previous research provides limited credibility. By means of the newly developed stochastic population forecasting methodology and counterfactual numerical simulations, we found a huge volatility associated with long-term population forecasting. A positive correlation between the expected volatility of population changes and real estate demand is ascertained. Copyright Springer-Verlag 2013

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Article provided by Springer in its journal Journal of Population Economics.

Volume (Year): 26 (2013)
Issue (Month): 1 (January)
Pages: 323-356

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Handle: RePEc:spr:jopoec:v:26:y:2013:i:1:p:323-356
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  1. Andrew B. Abel, 2001. "Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 589-595, November.
  2. Andrew B. Abel, 2002. "The effects of a baby boom on stock prices and capital accumulation in the presence of Social Security," Working Papers 03-2, Federal Reserve Bank of Philadelphia.
  3. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
  4. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Moral and Social Constraints to Strategic Default on Mortgages," Economics Working Papers ECO2009/27, European University Institute.
  5. Chester Foster & Robert Order, 1985. "FHA Terminations: A Prelude to Rational Mortgage Pricing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 273-291.
  6. Hilary Williamson Hoynes & Daniel McFadden, 1994. "The Impact of Demographics on Housing and Non-Housing Wealth in the United States," NBER Working Papers 4666, National Bureau of Economic Research, Inc.
  7. Mario Fortin & André Leclerc, 2000. "Demographic Changes and Real Housing Prices in Canada," Cahiers de recherche 00-06, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  8. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
  9. James B. Kau & Taewon Kim, 1994. "Waiting to Default: The Value of Delay," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(3), pages 539-551.
  10. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May.
  11. Han, Xuehui, 2010. "Housing demand in Shanghai: A discrete choice approach," China Economic Review, Elsevier, vol. 21(2), pages 355-376, June.
  12. Jan Hoem & Dan Madien & Jørgen Nielsen & Else-Marie Ohlsen & Hans Hansen & Bo Rennermalm, 1981. "Experiments in modelling recent Danish fertility curves," Demography, Springer, vol. 18(2), pages 231-244, May.
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