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Expectations-Driven Cycles in the Housing MarketLuisa LambertiniEcole Polytechnique Fédérale de Lausanne Caterina MendicinoBank of Portugal Maria Teresa PunziBank of Portugal; Boston College - Department of Economics; University of Nottingham - Malaysia Campus October 2010 Center for Fiscal Policy, EPFL, Chair of International Finance (CFI) Working Paper No. 2010-01 Abstract: This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We explore the role of expectations on productivity and other shocks originating from the housing market, the credit market and the conduct of monetary policy. We find that expectations related to different sectors of the economy can generate booms in the housing market in accordance with empirical findings. Only expectations of future expansionary monetary policy that are not fulfilled can generate a macroeconomic recession. Regarding the credit market, increased access to credit generates boom-bust cycles only if it is expected to be reversed in the near future.
Number of Pages in PDF File: 64 Keywords: boom-bust cycles, credit frictions, housing market JEL Classification: E32, E44, E52 working papers seriesDate posted: January 14, 2010 ; Last revised: November 28, 2010Suggested CitationContact Information
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