Heterogeneous expectations,boom-bust housing cycles,and supply conditions: A nonlinear economic dynamics approach |
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Institution: | 1. Department of Accounting, Economics and Finance, University of the West of England, United Kingdom;2. School of Economics, University of Surrey, United Kingdom;1. Department of Management, University Politecnica delle Marche, Piazzale Martelli 8, Ancona (AN) 60121, Italy;2. Department of Economics Marco Biagi, University of Modena and Reggio Emilia, Via Jacopo Berengario 51, Modena 41121, Italy |
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Abstract: | We combine a standard stock-flow housing market model, incorporating explicit relationships between house prices, the housing stock, and the rent level, with a parsimonious expectation formation scheme of housing market investors, reflecting an evolving mix of extrapolative and regressive expectation rules. The model results in a two-dimensional discrete-time nonlinear dynamical system. Based on realistic parameters, the model is able to generate endogenous boom-bust housing market dynamics with lasting periods of overvaluation and overbuilding. We thus exploit our model to investigate how real forces, in particular supply conditions, interact with expectations-driven housing market fluctuations. |
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Keywords: | Housing markets Speculation Housing supply Boom-bust cycles Nonlinear dynamics |
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