Learning, house prices and macro-financial linkages

Pauline Gandré

No 2020-10, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: In the US, the linkages between the housing market, the credit market and the real sector have been striking in the past decades. To explain these linkages, I develop a small-scale DSGE model in which agents update non-rational beliefs about future house price growth, in accord with recent survey data evidence. Conditional on subjective house price beliefs, expectations are model-consistent. In the model with non-rational expectations, both standard productivity shocks and shocks in the credit sector generate endogenously persistent booms in house prices. Long-lasting excess volatility in house prices, in turn, affects the financial sector (because housing assets serve as collateral for household and entrepreneurial debt), and propagates to the real sector. This amplification and propagation mechanism improves the ability of the model to explain empirical puzzles in the US housing market and to explain the macro-financial linkages during 1985-2019. The learning model can also replicate the predictability of forecast errors evidenced in survey data.

Keywords: Housing booms; Financial Accelerator; Business Cycles; Non-rational Expectations; Learning. (search for similar items in EconPapers)
JEL-codes: D83 D84 E32 E44 G12 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2020
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://economix.fr/pdf/dt/2020/WP_EcoX_2020-10.pdf (application/pdf)

Related works:
Working Paper: Learning, house prices and macro-financial linkages (2020)
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:drm:wpaper:2020-10

Access Statistics for this paper

More papers in EconomiX Working Papers from University of Paris Nanterre, EconomiX Contact information at EDIRC.
Bibliographic data for series maintained by Valerie Mignon ( this e-mail address is bad, please contact ).