Expectations-Driven Cycles in the Housing Market
64 Pages Posted: 14 Jan 2010 Last revised: 28 Nov 2010
Date Written: October 2010
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
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