Expectation-driven cycles in the housing market: Evidence from survey data

Luisa Lambertini, Caterina Mendicino and Maria Teresa Punzi

Journal of Financial Stability, 2013, vol. 9, issue 4, 518-529

Abstract: Using a vector-autoregression (VAR) model and data from the University of Michigan Survey of Consumers, we provide evidence on the importance of news and consumers’ beliefs for housing-market dynamics and aggregate fluctuations. We document that innovations to News on Business Conditions generate hump-shaped responses in house prices and other macroeconomic variables. We also show that innovations to Expectations of Rising House Prices are particularly important in explaining the path of macroeconomic variables during housing booms. To disentangle the effects of News on Business Conditions from other sources of expectation-driven cycles, we estimate a VAR where the News variable is ordered first. Innovations to News on Business Conditions generate Expectations of Rising House Prices. However, during housing booms, innovations to Expectations of Rising House Prices unrelated to News on Business Conditions account for a large part of macroeconomic fluctuations. Shocks to News and Expectations account together for more than half of the forecast error variance of house prices, and other macroeconomic variables, during periods of booms in house prices.

Keywords: Boom–bust cycles; Credit frictions; Housing market (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1572308913000697
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:9:y:2013:i:4:p:518-529

DOI: 10.1016/j.jfs.2013.07.006

Access Statistics for this article

Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

More articles in Journal of Financial Stability from Elsevier
Bibliographic data for series maintained by Catherine Liu ().