Publication by Carolin Martin, Noemi Schmitt and Frank Westerhoff in the Journal of Economic Behavior and Organization!


Carolin Martin, Noemi Schmitt und Frank Westerhoff have published an article entitled "Heterogeneous expectations, housing bubbles and dtax policy" in the Journal of Economic Behavior and Organization.


We integrate a plausible expectation formation and learning scheme of boundedly rational investors into a standard user cost housing market model, involving a rental and a housing capital market. In particular, investors switch between heterogeneous expectation rules according to an evolutionary fitness measure, given by the rules’ past profitability. We analytically show that our housing market model may produce endogenous boom-bust dynamics. Furthermore, we demonstrate that policy makers may use our model as a tool to explore how different tax policies may affect the housing market’s steady state, its stability and out-of-equilibrium behavior.