Abstract
This paper analyzes the roles of credit market conditions in endogenous formation of housing-market boom–bust cycles in a business cycle model. When households are uncertain about the duration of a temporary high income growth period, expected future house prices rise during the high growth period and fall at the end of the period. But this development causes expectation-driven boom–bust cycles in current house prices only if the economy is open to international capital flows. It is also shown that high maximum loan-to-value ratios for residential mortgages per se do not cause boom–bust cycles without international capital flows in the model.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have