A mechanism for booms and busts in housing prices

Marten Hillebrand and Tomoo Kikuchi

No 40, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management

Abstract: We study an exchange economy with overlapping generations of consumers who derive utility from consuming a non-durable commodity and housing. A banking sector offers loans to finance housing. We provide a complete characterization of the equilibrium dynamics which alternates between an expansive regime where housing prices increase and banks expand loans and a contractive regime associated with decreasing housing values and shrinking credit volume. Regime switches occur even under small but persistent income changes giving rise to large and recurrent booms and busts in housing prices not reflecting changes in fundamentals.

Keywords: OLG; Housing prices; Credit volume; Boom-bust scenarios; Regime switching (search for similar items in EconPapers)
JEL-codes: C62 E32 G21 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-dge and nep-ure
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Related works:
Journal Article: A mechanism for booms and busts in housing prices (2015)
Working Paper: A Mechanism for Booms and Busts in Housing Prices (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:40

DOI: 10.5445/IR/1000028302

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