Brunnermeier, Markus K. and Julliard, Christian (2006) Money illusion and housing frenzies. 12810. National Bureau of Economic Research, Cambridge, MA., USA.
Full text not available from this repository.Abstract
A reduction in inflation can fuel run-ups in housing prices if people suffer from money illusion. For example, investors who decide whether to rent or buy a house by simply comparing monthly rent and mortgage payments do not take into account that inflation lowers future real mortgage costs. We decompose the price-rent ratio in a rational component -- meant to capture the proxy effect and risk premia -- and an implied mispricing. We find that inflation and nominal interest rates explain a large share of the time-series variation of the mispricing, and that the tilt effect is unlikely to rationalize this finding.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://www.nber.org |
| Additional Information: | © 2006 Markus K. Brunnermeier and Christian Julliard |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory |
| Journal of Economic Literature Classification System: | G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates R - Urban, Rural, and Regional Economics > R2 - Household Analysis |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online Departments > Economics Collections > LSE Financial Markets Group (FMG) Working Papers |
| Identification Number: | 12810 |
| Date Deposited: | 12 May 2008 10:29 |
| URL: | http://eprints.lse.ac.uk/4815/ |
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