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Housing market bubbles and business cycles in an agent-based credit economy

  • Erlingsson, Einar Jon
  • Teglio, Andrea
  • Cincotti, Silvano
  • Stefansson, Hlynur
  • Sturlusson, Jon Thor
  • Raberto, Marco

This paper investigates the housing and mortgage markets by means of an agent-based macroeconomic model of a credit network economy. A set of computational experiments have been carried out in order to explore the effects of different households' creditworthiness conditions required by banks in order to grant a mortgage. Results show that easier access to credit inflates housing prices, triggering a short run output expansion. However, the artificial economy becomes more unstable and prone to recessions. With stricter conditions the economy is more stable and does not fall into serious recessions, although a too severe regulation can slow down economic growth.

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2014-8
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File URL: http://econstor.eu/bitstream/10419/93133/1/779650697.pdf
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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 8 (2014)
Issue (Month): ()
Pages: 1-42

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Handle: RePEc:zbw:ifweej:20148
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  1. Karl E. Case & John M. Quigley & Robert J. Shiller, 2001. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Cowles Foundation Discussion Papers 1335, Cowles Foundation for Research in Economics, Yale University.
  2. Christopher D. Carroll & Misuzu Otsuka & Jiri Slacalek, 2011. "How Large Are Housing and Financial Wealth Effects? A New Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 55-79, 02.
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  5. Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Kirman, Alan, 1989. "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes," Economic Journal, Royal Economic Society, vol. 99(395), pages 126-39, Supplemen.
  7. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
  8. Dosi, Giovanni & Fagiolo, Giorgio & Napoletano, Mauro & Roventini, Andrea, 2013. "Income distribution, credit and fiscal policies in an agent-based Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1598-1625.
  9. Andrea Teglio & Marco Raberto & Silvano Cincotti, 2011. "The impact of banks’ capital adequacy regulation on the economic system: an agent-based approach," Working Papers 2011/01, Economics Department, Universitat Jaume I, Castellón (Spain).
  10. Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
  11. Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2012. "Debt, deleveraging and business cycles: An agent-based perspective," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6, pages 1-49.
  12. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  13. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version)," NBER Working Papers 8387, National Bureau of Economic Research, Inc.
  14. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  15. Deaton, A., 1991. "Household Saving in LDC'S: Credit Markets, Insurance, And Welfare," Papers 153, Princeton, Woodrow Wilson School - Development Studies.
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