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Real interest policy and the housing cycle

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  • Benjamin Eden

    (Vanderbilt University)

Abstract

I use a model of rational bubbles to discuss the effects of government loans and its real interest policy on the possibility of cycles. Cycles occur when the government is willing to lend to the young generation. Cycles do not occur if the government does not lend and the interest rate is sufficiently high. The level of interest required to discourage cycles (in the no lending case) is high when the rate of technological change in the non-housing sector is high relative to the rate of technological change in the housing sector.

Suggested Citation

  • Benjamin Eden, 2019. "Real interest policy and the housing cycle," Vanderbilt University Department of Economics Working Papers 19-00002, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:vuecon-sub-19-00002
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    References listed on IDEAS

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    More about this item

    Keywords

    Housing-cycles; Interest Rate; Bubbles; Government loans;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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