TY  - BOOK
AU  - Brunnermeier,Markus K.
AU  - Julliard,Christian
ED  - National Bureau of Economic Research.
TI  - Money Illusion and Housing Frenzies
T2  - NBER working paper series
PY  - 2006///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - December 2006; Hardcopy version available to institutional subscribers
N2  - A reduction in inflation can fuel run-ups in housing prices if people suffer from money illusion. For example, investors who decide whether to rent or buy a house by simply comparing monthly rent and mortgage payments do not take into account that inflation lowers future real mortgage costs. We decompose the price-rent ratio in a rational component -- meant to capture the proxy effect and risk premia -- and an implied mispricing. We find that inflation and nominal interest rates explain a large share of the time-series variation of the mispricing, and that the tilt effect is unlikely to rationalize this finding
UR  - https://www.nber.org/papers/w12810
UR  - http://dx.doi.org/10.3386/w12810
ER  -