TY  - JOUR
AU  - Burnside, Craig
AU  - Eichenbaum, Martin
AU  - Rebelo, Sergio
TI  - Understanding Booms and Busts in Housing Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16734
PY  - 2011
Y2  - January 2011
DO  - 10.3386/w16734
UR  - http://www.nber.org/papers/w16734
L1  - http://www.nber.org/papers/w16734.pdf
N1  - Author contact info:
Craig Burnside
Department of Economics
Duke University
213 Social Sciences Building
Durham, NC 27708-0097
Tel: 919/660-1808
Fax: 919/684-8974
E-Mail: craig.burnside@duke.edu

Martin S. Eichenbaum
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8232
Fax: 847/491-7001
E-Mail: eich@northwestern.edu

Sergio Rebelo
Northwestern University
Kellogg School of Management
Department of Finance
Leverone Hall
Evanston, IL  60208-2001
Tel: 847/467-2329
Fax: 847/491-5719
E-Mail: s-rebelo@northwestern.edu
AB  - Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of “social dynamics.” Agents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.
ER  -