A mechanism for booms and busts in housing prices
We study an exchange economy with overlapping generations of consumers who derive utility from consuming a non-durable commodity and housing. A banking sector offers loans to finance housing. We provide a complete characterization of the equilibrium dynamics which alternates between an expansive regime where housing prices increase and banks expand loans and a contractive regime associated with decreasing housing values and shrinking credit volume. Regime switches occur even under small but persistent income changes giving rise to large and recurrent booms and busts in housing prices not reflecting changes in fundamentals.
|Date of creation:||2012|
|Contact details of provider:|| Web page: http://www.wiwi.kit.edu/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean Tirole & Emmanuel Farhi, 2011.
2011 Meeting Papers
1081, Society for Economic Dynamics.
- Emmanuel Farhi & Jean Tirole, 2011. "Bubbly Liquidity," NBER Working Papers 16750, National Bureau of Economic Research, Inc.
- Farhi, Emmanuel & Tirole, Jean, 2009. "Bubbly Liquidity," IDEI Working Papers 577, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2011.
- Farhi, Emmanuel & Tirole, Jean, 2009. "Bubbly Liquidity," TSE Working Papers 09-101, Toulouse School of Economics (TSE), revised Feb 2011.
- Bajari, Patrick & Chan, Phoebe & Krueger, Dirk & Miller, Daniel, 2010.
"A Dynamic Model of Housing Demand: Estimation and Policy Implications,"
CEPR Discussion Papers
7911, C.E.P.R. Discussion Papers.
- Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2013. "A Dynamic Model Of Housing Demand: Estimation And Policy Implications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 409-442, 05.
- Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2010. "A Dynamic Model of Housing Demand: Estimation and Policy Implications," NBER Working Papers 15955, National Bureau of Economic Research, Inc.
- Herakles Polemarchakis, 2001. "Debt, liquidity and dynamics," Working Papers 2001-22, Brown University, Department of Economics.
- Kocherlakota, Narayana R., 1992.
"Bubbles and constraints on debt accumulation,"
Journal of Economic Theory,
Elsevier, vol. 57(1), pages 245-256.
- John Moore & Nobuhiro Kiyotaki, "undated".
1995-5, Edinburgh School of Economics, University of Edinburgh.
- Caballero, Ricardo J. & Krishnamurthy, Arvind, 2006.
"Bubbles and capital flow volatility: Causes and risk management,"
Journal of Monetary Economics,
Elsevier, vol. 53(1), pages 35-53, January.
- Ricardo J. Caballero & Arvind Krishnamurthy, 2005. "Bubbles and Capital Flow Volatility: Causes and Risk Management," NBER Working Papers 11618, National Bureau of Economic Research, Inc.
- POLEMARCHAKIS, Heracles M. & ROCHON, Céline, 1999.
"Debt, liquidity and dynamics,"
CORE Discussion Papers
1999034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
- Michel, Philippe & Wigniolle, Bertrand, 2003. "Temporary bubbles," Journal of Economic Theory, Elsevier, vol. 112(1), pages 173-183, September.
- Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
When requesting a correction, please mention this item's handle: RePEc:zbw:kitwps:40. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.