Understanding booms and busts in housing markets

Burnside, C. , Eichenbaum, M. and Rebelo, S. (2016) Understanding booms and busts in housing markets. Journal of Political Economy, 124(4), pp. 1088-1147. (doi: 10.1086/686732)

Abstract

Some booms in housing prices are followed by busts. Others are not. It is generally di¢ cult to Önd observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of ìsocial dynamics.îAgents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Burnside, Professor Craig
• Authors: Burnside, C., Eichenbaum, M., and Rebelo, S.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of Political Economy
• Publisher: University of Chicago Press
• ISSN: 0022-3808
• ISSN (Online): 1537-534X
• Copyright Holders: Copyright © 2016 University of Chicago Press
• First Published: First published in Journal of Political Economy 124(4):1088-1147
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher