Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098361 | Journal of Economic Dynamics and Control | 2015 | 14 Pages |
Abstract
The paper studies the dynamics of housing prices in a pure exchange overlapping generations framework a la Samuelson (1958) and Gale (1973), which is extended to include housing as a utility-yielding durable good and a credit sector. We completely characterize the equilibrium dynamics, which alternates between an expansive regime where leveraged borrowing increases housing prices, and a contractive regime where these variables decrease. Regime switches occur due to small but persistent income changes giving rise to boom-bust cycles in housing prices. Price deviations from fundamentals are caused by leveraged borrowing, and turn out to be fully welfare-neutral.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Marten Hillebrand, Tomoo Kikuchi,