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Money Illusion and Housing Frenzies / Markus K. Brunnermeier, Christian Julliard.
- Format:
- Book
- Author/Creator:
- Brunnermeier, Markus K.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w12810.
- NBER working paper series no. w12810
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2006.
- Summary:
- 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.
- Notes:
- Print version record
- December 2006.
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