IDEAS home Printed from https://ideas.repec.org/p/tcb/wpaper/1415.html
   My bibliography  Save this paper

News, Housing Boom-Bust Cycles, and Monetary Policy

Author

Listed:
  • Birol Kanik
  • Wei Xiao

Abstract

We explore the possibility that a housing market boom-bust cycle may arise when public beliefs are driven by news shocks. News, imperfect and noisy by nature, may generate expectations that are overly optimistic or pessimistic. Over-optimism easily leads to excessive accumulation of housing assets, and creates a housing boom that is not based on fundamentals. When the news is found false or inaccurate, investors revert their actions, and a downturn in the housing market follows. By altering agents’ net worth conditions, a housing cycle can have significant repercussions in the aggregate economy. In this paper, we construct a dynamic general equilibrium model that can give rise to a news-driven housing boom-bust cycle, and we consider how monetary policies should respond to it.

Suggested Citation

  • Birol Kanik & Wei Xiao, 2014. "News, Housing Boom-Bust Cycles, and Monetary Policy," Working Papers 1415, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1415
    as

    Download full text from publisher

    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2014/14-15
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martial Dupaigne & Franck Portier & Paul Beaudry, 2007. "The International Propagation of News Shocks," 2007 Meeting Papers 251, Society for Economic Dynamics.
    2. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
    3. Batini, Nicoletta & Nelson, Edward, 2000. "When the Bubble Bursts: Monetary Policy Rules and Foreign Exchange Market Behavior," Working Papers 2000-01, University of Sydney, School of Economics.
    4. Christiano, Lawrence & Motto, Roberto & Rostagno, Massimo & Ilut, Cosmin, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 955, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. News, Housing Boom-Bust Cycles, and Monetary Policy
      by Christian Zimmermann in NEP-DGE blog on 2014-06-18 14:08:07

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. R. P. Agenor & K. Alper & L. Pereira da Silva, 2013. "Capital Regulation, Monetary Policy, and Financial Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 198-243, September.
    2. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.
    3. Birol Kanik, 2012. "Learning, Monetary Policy, and Housing Prices," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 12(1), pages 13-36.
    4. Gabriel Bruneau & Ian Christensen & Césaire Meh, 2016. "Housing Market Dynamics and Macroprudential Policy," Staff Working Papers 16-31, Bank of Canada.
    5. Galip Kemal Ozhan, 2015. "Financial Intermediation, Resource Allocation, and Macroeconomic Interdependence," 2015 Papers poz71, Job Market Papers.
    6. Yongheng Deng & Eric Girardin & Roselyne Joyeux, 2015. "Fundamentals and the Volatility of Real Estate Prices in China: A Sequential Modelling Strategy," Working Papers 222015, Hong Kong Institute for Monetary Research.
    7. repec:eee:chieco:v:48:y:2018:i:c:p:205-222 is not listed on IDEAS

    More about this item

    Keywords

    Business cycle; News; Monetary policy.;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tcb:wpaper:1415. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ozlem Ekmekciler Ramalho Rocha) or (Ilker Cakar). General contact details of provider: http://edirc.repec.org/data/tcmgvtr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.