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American Economic Review: Vol. 102 No. 3 (May 2012)

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Getting at Systemic Risk via an Agent-Based Model of the Housing Market

Article Citation

Geanakoplos, John, Robert Axtell, J. Doyne Farmer, Peter Howitt, Benjamin Conlee, Jonathan Goldstein, Matthew Hendrey, Nathan M. Palmer, and Chun-Yi Yang. 2012. "Getting at Systemic Risk via an Agent-Based Model of the Housing Market." American Economic Review, 102(3): 53-58.

DOI: 10.1257/aer.102.3.53

Abstract

Systemic risk must include the housing market, though economists have not generally focused on it. We begin construction of an agent-based model of the housing market with individual data from Washington, DC. Twenty years of success with agent-based models of mortgage prepayments give us hope that such a model could be useful. Preliminary analysis suggests that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates.

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Authors

Geanakoplos, John (Yale University and Santa Fe Institute)
Axtell, Robert (George Mason University)
Farmer, J. Doyne (Santa Fe Institute)
Howitt, Peter (Brown University)
Conlee, Benjamin
Goldstein, Jonathan
Hendrey, Matthew
Palmer, Nathan M.
Yang, Chun-Yi

JEL Classifications

D81: Criteria for Decision-Making under Risk and Uncertainty
R31: Housing Supply and Markets
C63: Computational Techniques; Simulation Modeling
E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
G01: Financial Crises


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