Sunspots and Self-Fulfilling Beliefs in the U.S. Housing Market

Masanori Kashiwagi

Review of Economic Dynamics, 2014, vol. 17, issue 4, 654-676

Abstract: This paper provides a rational expectations equilibrium framework to organize the following observations about the U.S. housing market from 1975 to 2007: (i) housing occupancy patterns were approximately constant, (ii) rents were stable, and (iii) house prices appreciated considerably in the late 1990s. I develop a model based on search and matching theory and close it by specifying a state of household confidence that is assumed to take one of two sunspot-driven values: normal or exuberant. The model generates a substantial increase in house prices and stable rents as the probability of the exuberant state increases, driven by self-fulfilling beliefs. I explore which aspects of the parameterization are important for generating a large appreciation in house prices in the model. (Copyright: Elsevier)

Keywords: House prices; Sunspots; Self-fulfilling beliefs; Search (search for similar items in EconPapers)
JEL-codes: E30 E32 R32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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DOI: 10.1016/j.red.2014.01.004

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