A mechanism for booms and busts in housing prices

Marten Hillebrand*, Tomoo Kikuchi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


The paper studies the dynamics of housing prices in a pure exchange overlapping generations framework a la Samuelson (1958) and Gale (1973), which is extended to include housing as a utility-yielding durable good and a credit sector. We completely characterize the equilibrium dynamics, which alternates between an expansive regime where leveraged borrowing increases housing prices, and a contractive regime where these variables decrease. Regime switches occur due to small but persistent income changes giving rise to boom-bust cycles in housing prices. Price deviations from fundamentals are caused by leveraged borrowing, and turn out to be fully welfare-neutral.

Original languageEnglish
Pages (from-to)204-217
Number of pages14
JournalJournal of Economic Dynamics and Control
Publication statusPublished - 2015 Feb 1
Externally publishedYes


  • Boom-bust cycles
  • Credit volume
  • Housing prices
  • Pure exchange OLG
  • Regime switching

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics


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