Monopoly in Real Life - The Housing Market, Finance and Inequality
31 Pages Posted: 15 Mar 2017 Last revised: 30 Jan 2019
Date Written: January 28, 2019
This paper uses a simple model based on the board game Monopoly to analyze the drivers of house prices and wealth inequality. Simulations show that the inequality depends on the timing and distribution of home ownership, house price growth and wage growth. An extension of the classical game with interest rates and debt-financing further shows that low interest rates increase house prices and thus inequality by more than high interest rates. The model is also used to analyze the role of foreign investors, excess debt and a "Utopia" setting where every player owns exactly one house. Overall, despite the model's simplicity it presents striking similarities with empirical evidence.
Keywords: house prices; debt; inequality; monetary policy; board game Monopoly
JEL Classification: D10; D31; D42; D63; E47; E58; R30
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