Expectations-driven cycles in the housing market

Arbeitspapier

Survey data suggests that news of changes in business conditions are significantly related to house prices and consumers' beliefs of favorable buying conditions in the housing market. This paper explores the transmission of "news shocks" as a source of boom-bust cycles in the housing market. News on shocks originated in different sectors of the economy can generate booms in the housing market in accordance with the average behavior in the data; expectations on monetary policy and inflationary shocks that are not fulfilled can also lead to the observed subsequent macroeconomic recession. Investigating the role of the credit market for house market fluctuations we find that favorable credit conditions that are expected to be reversed in the near future generate boom-bust cycle dynamics in line with the most recent episode. Further, credit conditions also affect boom-bust cycles generated by news shocks originated in other sectors of the economy. In particular, lower loan-to-value ratios reduce the severity of expectations-driven cycles and the volatility of household debt, aggregate consumption and GDP.

Object Details

• ISBN: 978-952-462-785-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 2/2012

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Monetary Policy
• Subject: boom-bust cycles ; credit frictions ; housing market

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lambertini, Luisa ; Mendicino, Caterina ; Punzi, Maria Teresa
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/212205
• Last update: 10.03.2025, 11:45 AM CET