Understanding booms and busts in housing markets

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2016-08-01

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© 2016 by The University of Chicago. All rights reserved.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.

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Burnside

A. Craig Burnside

Mary Grace Wilson Distinguished Professor

Burnside’s fields of specialization include macroeconomics and international finance. His recent research focuses on foreign exchange markets, empirical methods in finance, and the behavior of prices in housing markets.

He has published articles in a number of academic journals, including the American Economic Review, the Journal of Political Economy, the Review of Economic Studies, and the Review of Financial Studies.

He is a Research Associate of the National Bureau of Economic Research, and was previously a member of the Board of Editors of the American Economic Review (2001-06, 2011-20), Associate Editor for the Review of Economics and Statistics (2012-15), co-editor of the Canadian Journal of Economics (2007-10), and Associate Editor for the Journal of Money Credit and Banking (2003-11).


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