Abstract
This paper proposes a model in which house prices are determined by economy-wide nominal income and nominal mortgage payments in the short run, while being determined by acquisition costs in the long run. The model, to a large extent, explains the 1995-2007 housing market run-up in the OECD countries by lower mortgage repayments, decreasing nominal interest rates, and increasing nominal GDP, partly induced by a large inflow of migrants. Empirical estimates give strong support for the model and suggest that it explains house prices in the OECD better than alternative models.
Original language | English |
---|---|
Pages (from-to) | 21 - 38 |
Number of pages | 18 |
Journal | Journal of Economic Behavior and Organization |
Volume | 82 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2012 |