International capital flows and expectation-driven boom-bust cycles in the housing market

Hajime Tomura

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 10, 1993-2009

Abstract: This paper analyzes the roles of credit market conditions in endogenous formation of housing-market boom-bust cycles in a business cycle model. When households are uncertain about the duration of a temporary high income growth period, expected future house prices rise during the high growth period and fall at the end of the period. But this development causes expectation-driven boom-bust cycles in current house prices only if the economy is open to international capital flows. It is also shown that high maximum loan-to-value ratios for residential mortgages per se do not cause boom-bust cycles without international capital flows in the model.

Keywords: Informational; overshooting; House; prices; Boom-bust; cycles; Credit; market; frictions; Financial; liberalization (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (23)

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