Understanding booms and busts in housing markets

Published

Journal Article

© 2016 by The University of Chicago. All rights reserved. Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find 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 “social dynamics.” Agents 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.

Full Text

Duke Authors

Cited Authors

  • Burnside, C; Eichenbaum, M; Rebelo, S

Published Date

  • August 1, 2016

Published In

Volume / Issue

  • 124 / 4

Start / End Page

  • 1088 - 1147

Electronic International Standard Serial Number (EISSN)

  • 1537-534X

International Standard Serial Number (ISSN)

  • 0022-3808

Digital Object Identifier (DOI)

  • 10.1086/686732

Citation Source

  • Scopus