Cyclical price analysis needs major improvements – ECB paper
Researchers say DSGE models’ handling of housing prices is subject to errors
House prices and credit growth in the eurozone show strong signs of moving in related medium-term cycles, says an occasional paper published by the European Central Bank.
It argues that many current modelling and analysis methods show weaknesses in dealing with credit and house price cycles. The paper notably argues that models based on dynamic stochastic general equilibrium (DSGE) principles fail to adequately capture housing booms and busts. “Real-time” analysis of credit growth and the
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