Working Paper Nr. 142 im volkswirtschaftlichen BERG-Verlag ver?ffentlicht!

Carolin Martin, Noemi Schmitt and Frank Westerhoff haben mit "Housing markets, expectation formation and interest rates" Working Paper Nr. 142 im volkswirtschaftlichen BERG-Verlag Bamberg ver?ffentlich!

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Abstract:

Based on a behavioral stock-fow housing market model in which the expectation formation behavior of boundedly rational and heterogeneous investors may generate endogenous boom-bust cycles, we explore whether central banks can stabilize housing markets via the interest rate. Using a mix of analytical and numerical tools, we find that the ability of central banks to tame housing markets by increasing the base (target) interest rate, thereby softening the demand pressure on house prices, is rather limited. However, central banks can greatly improve the stability of housing markets by following an interest rate rule that adjusts the interest rate with respect to mispricing in the housing market.