Working Papers

Housing Price Bubbles and Macroprudential Policies, an Adaptive Learning Approach (Job Market Paper) [ PDF ]

We study the effects of the 2000's housing price bubble in the economy. For this, we introduced adaptive learning expectations formation in a DSGE model with housing and a banking sector. This framework provides flexibility in beliefs to match the non-rational behavior of house prices expectations. With this model we are able to capture the evolving effects that a house price bubble has in credit supply and the broader economy. The results suggest that the credit supply is indeed affected in episodes of asset bubbles. We additionally find that macro-prudential policies may lessen the response of financial intermediaries to the housing shocks that are being magnified by the learning dynamics.

Revisiting the Mixing in the Occasionally Binding Constraints estimation with a Gibbs Sampler

Given the documented asymmetries in business cycles, it is important to consider nonlinear DSGE models to better approximate the data. The "occasionally binding constraints" is one avenue that has been used to address the nonlinearity challenge. I revisit this issue with an MCMC algorithm based on a mixture model. By carefully defining the sampling scheme, I can make most of the draws directly from their conditional distribution with a Gibbs sampler step. As a result, the algorithm features fast convergence and low inefficiency factors.

Macroeconomic Effects of House Prices under Adaptive Learning Expectations

I study what were the effects of the housing price bubble in the economy. For this, I introduced adaptive learning expectations formation in a DSGE model with housing. This framework provides flexibility in beliefs to match the non-rational behavior of house prices expectations. With my model I am able to capture the evolving effects that a house price bubble have in the economy. The results suggest that the feedback from house prices beliefs into the economy was more severe around the period of the housing price bubble and continue to exist, in a lower magnitude, around the Great Recession.