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Expectations-Driven Cycles in the Housing Market

  • Luisa Lambertini

    ()

    (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland)

  • Caterina Mendicino
  • Maria Teresa Punzi

This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We explore the role of expectations on productivity and other shocks originating from the housing market, the credit market and the conduct of monetary policy. We find that expectations related to different sectors of the economy can generate booms in the housing market in accordance with empirical findings. Only expectations of future expansionary monetary policy that are not fulfilled can generate a macroeconomic recession. Regarding the credit market, increased access to credit generates boom-bust cycles only if it is expected to be reversed in the near future.

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Paper provided by Center for Fiscal Policy, Swiss Federal Institute of Technology Lausanne in its series Working Papers with number 201001.

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Length: 64 pages
Date of creation: Jan 2010
Date of revision: Oct 2010
Handle: RePEc:cif:wpaper:201001
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