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Equilibrium-Disequilibrium Dynamics of the US Housing Market, 2000-2015: A Quantal Response Statistical Equilibrium Approach

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  • Ozlem Omer

    () (Middle East Technical University)

Abstract

In this article, we demonstrate that a quantal response statistical equilibrium approach to the US housing market with the help of maximum entropy method of modeling is a powerful way of revealing di erent characteristics of the housing market behavior before, during and after the recent housing market crash in the US. In this line, a maximum entropy approach to quantal response statistical equilibrium model (QRSE), introduced by Scharfenaker and Foley (2017), is employed in order to model housing market dynamics in di erent phases of the most recent housing market cycle using the S&P Case Shiller housing price index for 20 largest- Metropolitan Regions, and Freddie Mac housing price index (FMHPI) for 367 Metropolitan Cities for the US between 2000 and 2015. Estimated model parameters provide an alternative way to understand and explain the behaviors of economic agents, and market dynamics by questioning the traditional economic theory, which takes assumption for the behavior of rational utility maximizing representative agent with self-fulfilled expectations as given.

Suggested Citation

  • Ozlem Omer, 2018. "Equilibrium-Disequilibrium Dynamics of the US Housing Market, 2000-2015: A Quantal Response Statistical Equilibrium Approach," Working Papers 1809, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1809
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2018/NSSR_WP_092018.pdf
    File Function: First version, 2018
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    References listed on IDEAS

    as
    1. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    2. Robert J Shiller, 2008. "Historic Turning Points in Real Estate," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 34(1), pages 1-13, Winter.
    3. Soofi, E. S. & Retzer, J. J., 2002. "Information indices: unification and applications," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 17-40, March.
    4. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    5. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    6. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
    7. Daniel L. McFadden, 1976. "Quantal Choice Analaysis: A Survey," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 363-390 National Bureau of Economic Research, Inc.
    8. Glaeser, Edward L. & Gyourko, Joseph & Morales, Eduardo & Nathanson, Charles G., 2014. "Housing dynamics: An urban approach," Journal of Urban Economics, Elsevier, vol. 81(C), pages 45-56.
    9. repec:bla:metroe:v:68:y:2017:i:3:p:465-499 is not listed on IDEAS
    10. Duncan K. Foley, 1996. "Statistical Equilibrium In A Simple Labor Market," Metroeconomica, Wiley Blackwell, vol. 47(2), pages 125-147, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Housing Market Crash; Statistical Equilibrium; Quantal Response; Informational Entropy; Maximum Entropy Method;

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G01 - Financial Economics - - General - - - Financial Crises
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

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