Housing Markets, the Real Economy and Macroeconomic Policy : A Boundedly Rational Heterogeneous Agents Perspective

Kumulative Dissertation, Otto-Friedrich-Universität Bamberg, 2022

The housing market plays a crucial role in economic and social life. The development of house prices has an impact on both the business cycle dynamics and the performance of the financial system. Against this background, the insolvency of Lehman Brothers, but also recently the financial woes of "Evergrande", has shown the dramatic consequences an overheating housing market and, associated therewith, the bubble formation may have on the real economy. Thus it is of utmost importance to gain a better understanding of the complex boom-and-bust behavior of housing markets. This doctoral thesis develops a new housing market model that links the expectation formation and learning behavior of heterogeneous and boundedly rational investors to an elementary housing market. The model is able to produce endogenous house price dynamics with significant bubbles and crashes. With this model framework it is then analyzed how fiscal and monetary policies may affect the housing market's steady state, its stability and out-of-equilibrium behavior. In particular, these policies include public housing construction programs, various interest rate rules by the central bank and different tax policies. The thesis also examines the interactions between the housing market and the real market. These approaches are discussed in four papers.