We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. The multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases housing prices, which can still be characterized by large fluctuations.
We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. The multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases housing prices, which can still be characterized by large fluctuations.
Auteur(s)
Lise Clain‐chamosset‐yvrard1
, Xavier Raurich2
, Thomas Seegmuller3
1
GATE Lyon Saint-Étienne -
Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne
( 1169844 )
- 93, chemin des Mouilles 69130 Écully 6, rue Basse des Rives 42023 Saint-Étienne cedex 02
- France
Université Lumière - Lyon 2 ( 33804 )
;
Université Jean Monnet - Saint-Étienne ( 300284 )
;
Centre National de la Recherche Scientifique UMR5824 ( 441569 )
2
UB -
Universitat de Barcelona
( 3447 )
- Gran Via de les Corts Catalanes, 585, 08007 Barcelona
- Espagne
E - Macroeconomics and Monetary Economics/E.E3 - Prices, Business Fluctuations, and Cycles/E.E3.E32 - Business Fluctuations • Cycles
E - Macroeconomics and Monetary Economics/E.E4 - Money and Interest Rates/E.E4.E44 - Financial Markets and the Macroeconomy
R - Urban, Rural, Regional, Real Estate, and Transportation Economics/R.R2 - Household Analysis/R.R2.R21 - Housing Demand
Domaine(s)
Sciences de l'Homme et Société/Economies et finances
Financement
X. Raurich thanks the financial support from the Spanish Government through grant PID2021-126549NB-I00.
T. Seegmuller thanks the financial support of the French government under the “France 2030” investment plan managed by the French National Research Agency Grant ANR-17-EURE-0020 and by the Excellence Initiative of Aix-Marseille University - A*MIDEX.