Expectations-Driven Cycles in the Housing Market

64 Pages Posted: 14 Jan 2010 Last revised: 28 Nov 2010

See all articles by Luisa Lambertini

Luisa Lambertini

Ecole Polytechnique Fédérale de Lausanne

Caterina Mendicino

Bank of Portugal; European Central Bank (ECB) - Directorate General Research

Maria Teresa Punzi

Vienna University of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 2010

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.

Keywords: boom-bust cycles, credit frictions, housing market

JEL Classification: E32, E44, E52

Suggested Citation

Lambertini, Luisa and Mendicino, Caterina and Punzi, Maria Teresa, Expectations-Driven Cycles in the Housing Market (October 2010). Center for Fiscal Policy, EPFL, Chair of International Finance (CFI) Working Paper No. 2010-01 . Available at SSRN: https://ssrn.com/abstract=1535859 or http://dx.doi.org/10.2139/ssrn.1535859

Luisa Lambertini (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

Caterina Mendicino

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Maria Teresa Punzi

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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