Year: 2016
Author: Dullien, Sebastian, Joebges, Heike, Márquez-Velázquez, Alejandro
Vierteljahrshefte zur Wirtschaftsforschung, Vol. 85 (2016), Iss. 1 : pp. 111–123
Abstract
The article gives a survey of the theoretical literature on the formation of house price bubbles with a specific focus in how far an expansionary monetary policy and especially low interest rates might lead to bubbles in these models. It is shown that–given standard methods of valuing houses by discounting future rent incomes–low interest rates can be expected to lead to higher house prices justified by changed fundamentals, but not necessarily to a bubble (which would require an overvaluation and future correction). In fact, none of the models surveyed has an explicit role for expansionary monetary policy to cause a bubble. Instead, some models show that unexpected changes in the rate of inflation can lead to bubbles due to money illusion: Here, individuals mistake changes in nominal interest rates for changes in real interest rates which might lead to misguided investment in real estate.
Journal Article Details
Publisher Name: Global Science Press
Language: German
DOI: https://doi.org/10.3790/vjh.85.1.111
Vierteljahrshefte zur Wirtschaftsforschung, Vol. 85 (2016), Iss. 1 : pp. 111–123
Published online: 2016-03
AMS Subject Headings: Duncker & Humblot, Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 13
Keywords: House prices monetary policy asset price bubbles E44 R30