Understanding Booms and Busts in Housing Markets
Some booms in housing prices are followed by busts. Others are not. In either case it is difficult to find observable fundamentals that are correlated with price movements. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of "social dynamics." Agents meet randomly. Those with tighter priors are more likely to convert others to their beliefs. The model generates a "fad": the fraction of the population with a particular view rises and then falls. Depending on which agent is correct about fundamentals, these fads generate boom-busts or protracted booms.
Year of publication: |
2012
|
---|---|
Authors: | Rebelo, Sergio ; Eichenbaum, Martin ; Burnside, Craig |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
freely available
Saved in favorites
Similar items by person
-
The Returns to Currency Speculation
Burnside, Craig, (2006)
-
Government Finance in the Wake of Currency Crises
Burnside, Craig, (2005)
-
Reference Prices and Nominal Rigidities
Rebelo, Sergio, (2010)
- More ...