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Heterogeneous expectation, beliefs evolution and house price volatility

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  • Zhang, Hao
  • Huang, Yuyuan
  • Yao, Haixiang

Abstract

After the subprime crisis, governments all over the world have gradually attached great importance to prevent excess volatility of house prices. This paper addresses the problem of house price volatility from the perspective of investors in the real estate market and constructs a demand function by maximizing the investor's wealth utility. Combined with the price adjustment rule of excess demand of the discounted dynamic behavior of suppliers, we propose a model for heterogeneous agents in the housing market. In the model we show how heterogeneous expectation and beliefs evolution affect the house price volatility. Meanwhile, the comparative static analysis on the difference between heterogeneous expectation and the rate of beliefs evolution is provided by numerical simulation. These results show that the change of fundamentalists' expectation on the house price will influence the frequency of the house price volatility, while the change of chartists' expectation which increases with the acceleration of beliefs in evolution will influence the range of the volatility.

Suggested Citation

  • Zhang, Hao & Huang, Yuyuan & Yao, Haixiang, 2016. "Heterogeneous expectation, beliefs evolution and house price volatility," Economic Modelling, Elsevier, vol. 53(C), pages 409-418.
    • Handle: RePEc:eee:ecmode:v:53:y:2016:i:c:p:409-418
    DOI: 10.1016/j.econmod.2015.10.039
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    References listed on IDEAS

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    5. Benjamin Patrick Evans & Mikhail Prokopenko, 2022. "Bounded strategic reasoning explains crisis emergence in multi-agent market games," Papers 2206.05568, arXiv.org.
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    7. Jie Wang & Biyu Peng & Xiaohua Xia & Zhu Ma, 2021. "Are Housing Prices Sustainable in 35 Large and Medium-Sized Chinese Cities? A Study Based on the Cheap Talk Game and Dynamic GMM," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    8. Guo Feng & Liu Chong & Shi Qingling, 2019. "Smart or stupid depends on who is your counterpart: a cobweb model with heterogeneous expectations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(5), pages 1-17, December.

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