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A simple model of a speculative housing market

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  • Dieci, Roberto
  • Westerhoff, Frank

Abstract

We develop a simple model of a speculative housing market in which the demand for houses is influenced by expectations about future housing prices. Guided by empirical evidence, agents rely on extrapolative and regressive forecasting rules to form their expectations. The relative importance of these competing views evolves over time, subject to market circumstances. As it turns out, the dynamics of our model is driven by a two-dimensional nonlinear map which may display irregular boom and bust housing price cycles, as repeatedly observed in many actual markets. However, we also find that speculation may be a source of both stability and instability.

Suggested Citation

  • Dieci, Roberto & Westerhoff, Frank, 2009. "A simple model of a speculative housing market," BERG Working Paper Series 62, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:62
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    More about this item

    Keywords

    Housing markets; Speculation; Boom and bust cycles; Nonlinear Dynamics;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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