IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v89y2024ipap692-701.html
   My bibliography  Save this article

Transmission of housing bubbles among industrial sectors

Author

Listed:
  • Wan, Junmin

Abstract

We find that housing bubbles are accompanied by sluggish demand in non-housing-related sectors both currently in China and previously in Japan. To explain this, we construct a theory to model the differential impact of housing bubbles on housing-related and non-housing-related industrial sectors by combining the neoclassical framework of general equilibrium with the input–output table. We also find that the housing bubble increases investments and output prices in housing-related sectors (crowding-in effect) while simultaneously reducing investments and output prices in non-housing-related sectors (crowding-out effect). Our theoretical findings could explain the negatively significant correlation between housing or land prices and the Consumer Price Index (CPI) during China and Japan’s bubble economy eras. Hence, this paper provides new insights into why and how the housing bubble distorts the economy differentially, for different industrial sectors.

Suggested Citation

  • Wan, Junmin, 2024. "Transmission of housing bubbles among industrial sectors," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 692-701.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:692-701
    DOI: 10.1016/j.iref.2023.08.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056023003210
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2023.08.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
    2. Junmin Wan & Qiqi Qiu, 2022. "Depreciation Rate by Industrial Sector and Profit after Tax in China," Chinese Economy, Taylor & Francis Journals, vol. 55(2), pages 111-128, March.
    3. Kazuo Ogawa, 2011. "Why Are Concavity Conditions Not Satisfied in the Cost Function? The Case of Japanese Manufacturing Firms during the Bubble Period," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(4), pages 556-580, August.
    4. Robert S. Chirinko & Huntley Schaller, 2001. "Business Fixed Investment and "Bubbles": The Japanese Case," American Economic Review, American Economic Association, vol. 91(3), pages 663-680, June.
    5. Dilip Abreu & Markus K. Brunnermeier, 2003. "Bubbles and Crashes," Econometrica, Econometric Society, vol. 71(1), pages 173-204, January.
    6. Allen F. & Morris S. & Postlewaite A., 1993. "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 61(2), pages 206-229, December.
    7. John R. Conlon, 2015. "Should Central Banks Burst Bubbles? Some Microeconomic Issues," Economic Journal, Royal Economic Society, vol. 125(582), pages 141-161, February.
    8. Wan, Junmin, 2018. "Non-performing loans and housing prices in China," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 26-42.
    9. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
    10. Lan, Hao & Moreira, Fernando & Zhao, Sheng, 2023. "Can a house resale restriction policy curb speculation? Evidence from a quasi-natural experiment in China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 841-859.
    11. Philippe Weil, 1987. "Confidence and the Real Value of Money in an Overlapping Generations Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 1-22.
    12. Liu, Feng & Conlon, John R., 2018. "The simplest rational greater-fool bubble model," Journal of Economic Theory, Elsevier, vol. 175(C), pages 38-57.
    13. Zhang, Mu & Zheng, Jie, 2017. "A robust reference-dependent model for speculative bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 232-258.
    14. Olivier J. Blanchard & Mark W. Watson, 1982. "Bubbles, Rational Expectations and Financial Markets," NBER Working Papers 0945, National Bureau of Economic Research, Inc.
    15. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-530, June.
    16. John R. Conlon, 2004. "Simple Finite Horizon Bubbles Robust to Higher Order Knowledge," Econometrica, Econometric Society, vol. 72(3), pages 927-936, May.
    17. Wan, Junmin & Qiu, Qiqi, 2023. "Industrial investments and housing prices in China," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 832-852.
    18. Shenzhe Jiang & Jianjun Miao & Yuzhe Zhang, 2022. "China'S Housing Bubble, Infrastructure Investment, And Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1189-1237, August.
    19. Bekiros, Stelios & Nilavongse, Rachatar & Uddin, Gazi Salah, 2020. "Expectation-driven house prices and debt defaults: The effectiveness of monetary and macroprudential policies," Journal of Financial Stability, Elsevier, vol. 49(C).
    20. Kenneth Rogoff & Yuanchen Yang, 2021. "Has China's Housing Production Peaked?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(1), pages 1-31, January.
    21. Junmin Wan, 2015. "Household Savings and Housing Prices in China," The World Economy, Wiley Blackwell, vol. 38(1), pages 172-192, January.
    22. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    23. Wan, Junmin, 2018. "Prevention and landing of bubble," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 190-204.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wan, Junmin, 2024. "Bubble occurrence and landing," Journal of Financial Stability, Elsevier, vol. 70(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wan, Junmin, 2024. "Bubble occurrence and landing," Journal of Financial Stability, Elsevier, vol. 70(C).
    2. Barlevy, Gadi, 2014. "A leverage-based model of speculative bubbles," Journal of Economic Theory, Elsevier, vol. 153(C), pages 459-505.
    3. John Conlon, 2005. "Should Central Banks Burst Bubbles?," Game Theory and Information 0508007, University Library of Munich, Germany.
    4. John R. Conlon, 2015. "Should Central Banks Burst Bubbles? Some Microeconomic Issues," Economic Journal, Royal Economic Society, vol. 125(582), pages 141-161, February.
    5. Jie Zheng, 2008. "Strong Bubbles and Common Expected Bubbles in a Finite Horizon Model," Levine's Working Paper Archive 814577000000000038, David K. Levine.
    6. Dong, Feng & Jia, Yandong & Wang, Siqing, 2022. "Speculative Bubbles and Talent Misallocation," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    7. Franklin Allen & Elena Carletti, 2013. "Systemic risk from real estate and macro-prudential regulation," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 28-48.
    8. Feng Liu & Joseph S. White & John R. Conlon, 2023. "A Three‐State Rational Greater‐Fool Bubble Model With Intertemporal Consumption Smoothing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1565-1594, November.
    9. Allen, Franklin & Carletti, Elena, 2013. "New theories to underpin financial reform," Journal of Financial Stability, Elsevier, vol. 9(2), pages 242-249.
    10. John Knight & Stephen Satchell & Nandini Srivastava, 2012. "Steady-State Distributions for Models of Bubbles: their Existence and Econometric Implications," Birkbeck Working Papers in Economics and Finance 1208, Birkbeck, Department of Economics, Mathematics & Statistics.
    11. Wan, Junmin & Qiu, Qiqi, 2023. "Industrial investments and housing prices in China," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 832-852.
    12. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    13. Tolhurst, Tor N., 2018. "A Model-Free Bubble Detection Method: Application to the World Market for Superstar Wines," 2018 Annual Meeting, August 5-7, Washington, D.C. 274387, Agricultural and Applied Economics Association.
    14. Zhang, Mu & Zheng, Jie, 2017. "A robust reference-dependent model for speculative bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 232-258.
    15. Yen-Hsiao Chen & Lianfeng Quan, 2013. "Rational speculative bubbles in the Asian stock markets: Tests on deterministic explosive bubbles and stochastic explosive root bubbles," Journal of Asset Management, Palgrave Macmillan, vol. 14(3), pages 195-208, June.
    16. Knight, John & Satchell, Stephen & Srivastava, Nandini, 2014. "Steady state distributions for models of locally explosive regimes: Existence and econometric implications," Economic Modelling, Elsevier, vol. 41(C), pages 281-288.
    17. Zhou, Ge, 2011. "Rational bubbles and the spirit of capitalism," MPRA Paper 33988, University Library of Munich, Germany.
    18. Allen, Franklin & Rogoff, Kenneth, 2011. "Asset Prices, Financial Stability and Monetary Policy," Working Papers 11-39, University of Pennsylvania, Wharton School, Weiss Center.
    19. Liu, Feng & Conlon, John R., 2018. "The simplest rational greater-fool bubble model," Journal of Economic Theory, Elsevier, vol. 175(C), pages 38-57.
    20. Matsushima, Hitoshi, 2013. "Behavioral aspects of arbitrageurs in timing games of bubbles and crashes," Journal of Economic Theory, Elsevier, vol. 148(2), pages 858-870.

    More about this item

    Keywords

    Housing bubble; Industrial sector; Input–output table; Overinvestment; Underinvestment; Crowding-in; Crowding-out;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:692-701. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.