Beliefs, Aggregate Risk, and the U.S. Housing Boom

Margaret Jacobson

No 2022-061r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Endogenously optimistic beliefs about future house prices can account for the increase, time-path, and volatility of house prices in the U.S. housing boom of the 2000s without shocks to housing preferences. In a general equilibrium model with incomplete markets and aggregate risk, heterogeneous agents endogenously form beliefs about future house prices in response to shocks to fundamentals. When fundamentals like credit conditions loosen, agents can only partially revise up their beliefs, resulting in increasingly optimistic beliefs that are consistent with both novel and existing empirical evidence. Because endogenous beliefs are sensitive to policy interventions, how beliefs are formed in housing booms has direct implications for prudential policy.

Keywords: Housing boom; Aggregate risk; Heterogeneous agents; Incomplete information (search for similar items in EconPapers)
JEL-codes: C68 E20 E30 R21 (search for similar items in EconPapers)
Pages: 81 p.
Date: 2022-09-23, Revised 2025-01-31
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-ure
Note: Revision
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2022061r1pap.pdf (application/pdf)

Related works:
Working Paper: Beliefs, Aggregate Risk, and the U.S. Housing Boom (2019)
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:fip:fedgfe:2022-61

DOI: 10.17016/FEDS.2022.061r1

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().