Heterogeneous expectations, boom-bust housing cycles, and supply conditions: A nonlinear dynamics approach

Roberto Dieci and Frank Westerhoff

No 99, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: We combine a standard stock-flow housing market model, incorporating explicit relationships between house prices, the housing stock, and the rent level, with a parsimonious expectation formation scheme of housing market investors, reflecting an evolving mix of extrapolative and regressive expectation rules. The model results in a two-dimensional discrete-time nonlinear dynamical system. Based on realistic parameters, the model is able to generate endogenous boom-bust housing market dynamics with lasting periods of overvaluation and overbuilding. We thus exploit our model to investigate how real forces, in particular supply conditions, interact with expectations-driven housing market fluctuations.

Keywords: Housing markets; Speculation; Housing supply; Boom-bust cycles; Nonlinear dynamics (search for similar items in EconPapers)
JEL-codes: D84 R21 R31 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:99

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