Sep 21, 2010

Articles in journals

Mendicino, C., Punzi, MT.

230

38

Housing demand and supply shocks are the main determinants of fluctuations in housing prices and investment (Iacoviello and Neri (2009)). This paper studies the role of expectations on future developments in the housing market in generating boom-bust dynamics. We show that expectations of a future reduction in the supply of houses generate boom-bust cycle dynamics in housing prices and housing investment as well as all aggregate variables. Our findings also highlight that responding to changes in either household indebtedness or housin prices reduces the magnitude of the boom-bust cycles and improves welfare.