EconPapers    
Economics at your fingertips  
 

Learning from House Prices: Amplification and Business Fluctuations

Ryan Chahrour and Gaetano Gaballo ()

No 14120, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide a new theory of demand-driven business cycles based on learning from prices in an otherwise frictionless real model. In our model, house price increases caused by aggregate disturbances may be misinterpreted as a signal of improved local consumption prospects, leading households to demand more current consumption and housing. Higher demand reinforces the initial price increase in an amplification loop that drives comovement in output, labor, residential investment, and house prices even in response to aggregate supply shocks. The model's qualitative implications are consistent with observed business cycles, and it can explain apparently autonomous changes in sentiment without resorting to non-fundamental shocks.

Keywords: animal spirits; Demand Shocks; House Prices; imperfect information (search for similar items in EconPapers)
JEL-codes: D82 D83 E03 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=14120 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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:cpr:ceprdp:14120

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=14120

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2022-01-16
Handle: RePEc:cpr:ceprdp:14120