News, Housing Boom-Bust Cycles, and Monetary Policy

Birol Kanık and Wei Xiao

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: We explore the possibility that a housing market boom-bust cycle may arise when public beliefs are driven by news shocks. News, imperfect and noisy by nature, may generate expectations that are overly optimistic or pessimistic. Over-optimism easily leads to excessive accumulation of housing assets, and creates a housing boom that is not based on fundamentals. When the news is found false or inaccurate, investors revert their actions, and a downturn in the housing market follows. By altering agents� net worth conditions, a housing cycle can have significant repercussions in the aggregate economy. In this paper, we construct a dynamic general equilibrium model that can give rise to a news-driven housing boom-bust cycle, and we consider how monetary policies should respond to it.

Keywords: Business cycle; News; Monetary policy. (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
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Citations: View citations in EconPapers (17)

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Journal Article: News, Housing Boom-Bust Cycles, and Monetary Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1415

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