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Title: When speculators meet suppliers : positive versus negative feedback in experimental housing markets
Authors: Bao, Te
Hommes, Cars
Keywords: Social sciences::Economic theory
Issue Date: 2019
Source: Bao, T., & Hommes, C. (2019). When speculators meet suppliers : positive versus negative feedback in experimental housing markets. Journal of Economic Dynamics and Control, 107, 103730-. doi:10.1016/j.jedc.2019.103730
Journal: Journal of Economic Dynamics and Control
Abstract: Asset markets like stock markets are characterized by positive feedback through speculative demand. But the supply of housing is endogenous, and adds negative feedback to the housing market. We design an experimental housing market and study how the strength of the negative feedback, i.e., the price elasticity of supply, affects market stability. In the absence of endogenous housing supply, the experimental markets exhibit large bubbles and crashes because speculators coordinate on trend-following expectations. When the positive feedback through speculative demand is offset by the negative feedback of elastic housing supply the market stabilizes and prices converge to fundamental value. Individual expectations and aggregate market outcome are well described by the heuristics switching model. Our results suggest that negative feedback policies may stabilize speculative asset bubbles.
ISSN: 0165-1889
DOI: 10.1016/j.jedc.2019.103730
Rights: © 2019 Elsevier B.V. All rights reserved. This paper was published in Journal of Economic Dynamics and Control and is made available with permission of Elsevier B.V.
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:SSS Journal Articles

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