Housing Market Bubbles and Business Cycles in an Agent-Based Credit Economy

Authored by Einar Jon Erlingsson, Hlynur Stefansson, Jon Thor Sturluson

Date Published: 2014-02-26

DOI: 10.5018/economics-ejournal.ja.2014-8

Sponsors: The Icelandic Research Fund

Platforms: FLAME MATLAB

Model Documentation: Other Narrative Mathematical description

Model Code URLs: http://iceace.github.io/home/

Abstract

This paper investigates the housing and mortgage markets by means of an agent-based macroeconomic model of a credit network economy. A set of computational experiments have been carried out in order to explore the effects of different households' creditworthiness conditions required by banks in order to grant a mortgage. Results show that easier access to credit inflates housing prices, triggering a short run output expansion. However, the artificial economy becomes more unstable and prone to recessions. With stricter conditions the economy is more stable and does not fall into serious recessions, although a too severe regulation can slow down economic growth.

Tags

Agent-based model Credit cycles housing market subprime lending