Economics Seminar（2015-05）

Topic: Housing Bubbles and Policy Analysis
Speaker: Pengfei Wang
Affiliation: Hong Kong University of Science and Technology

Time: Tuesday, April 14 from 2:00-3:30pm
Location: Room 217, Guanghua Building 2

Abstract:

This paper provides a theory of credit-driven housing bubbles in an infinite-horizon production economy. Entrepreneurs face idiosyncratic investment tax distortions and credit constraints. Housing is an illiquid asset and also serves as collateral for borrowing. A housing bubble can arise because house commands a liquidity premium. The housing bubble can provide liquidity and relax credit constraint, but can also generate inefficient overinvestment. Its net effect is to reduce welfare. Property taxes, Tobin’s taxes, macroprudential policy, and credit policy can prevent the formation of a housing bubble.

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