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 productioneconomy. Entrepreneurs face idiosyncratic investment tax distortions and credit constraints.Housing is an illiquid asset and also serves as collateral for borrowing. A housing bubble canarise because house commands a liquidity premium. The housing bubble can provide liquidityand relax credit constraint, but can also generate inefficient overinvestment. Its net effect isto reduce welfare. Property taxes, Tobin’s taxes, macroprudential policy, and credit policy canprevent the formation of a housing bubble.

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