Systemic Stability of Housing and Mortgage Market: From the observable to the unobservable

Xiao, Qin (2010): Systemic Stability of Housing and Mortgage Market: From the observable to the unobservable.

Abstract

Motivated by the revealed preference approach to consumer theory, this study constructs a dynamic theoretical model which infers the unobservable household behavior from the observable patterns of housing and mortgage market activities. The model emphasizes the role of asymmetric responses of sellers in different phases of a housing market cycle in generating certain price and volume patterns. Such role has so far largely been ignored in both theoretical and empirical studies of housing markets. The model also establishes, theoretically, multiple channels via which housing and mortgage markets interact and via which speculative forces are propagated. In addition, it generates a testable result regarding the stability of the system formed by the two markets, which may be extended by endogenizing some important policy instruments.

• Item Type: MPRA Paper
• Language: English
• Keywords: systemic stability; speculation; asymmetric seller response; feedback loop
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R31 - Housing Supply and Markets; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; G - Financial Economics > G0 - General > G01 - Financial Crises

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