Does large volatility help?—stochastic population forecasting technology in explaining real estate price process

Yuan Cheng () and Xuehui Han

Journal of Population Economics, 2013, vol. 26, issue 1, 323-356

Abstract: This paper investigates the association between real estate demand and the volatility of population changes. In a financial liberalized housing market, the housing mortgage loan implies insurance function to homeowners through the default option. Larger expected volatilities in the population imply a higher value of the default option. When analyzing the impact of the long-term population development on housing prices, the traditional deterministic population forecasting employed by previous research provides limited credibility. By means of the newly developed stochastic population forecasting methodology and counterfactual numerical simulations, we found a huge volatility associated with long-term population forecasting. A positive correlation between the expected volatility of population changes and real estate demand is ascertained. Copyright Springer-Verlag 2013

Keywords: Default option; Volatilities; Stochastic population forecasting; D81; D91; J11 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00148-010-0349-1

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