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Irrational Exuberance in the U.S. Housing Market: Were Evangelicals Left Behind?

Author/Editor: Crowe, Christopher W.
Authorized for Distribution: March 1, 2009
Electronic Access: Free Full Text (PDF file size is 1,137KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population-evangelical protestants-that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals' focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular internet measure of "prophetic activity" and a 9/11 event study. I also analyze survey data covering religious beliefs and asset holding, and find that 'end times' beliefs are associated with a one-third decline in net worth, consistent with these beliefs providing a form of psychic insurance (Scheve and Stasavage, 2006a and 2006b) that reduces asset demand.
 
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Series: Working Paper No. 09/57
Subject(s): Housing | United States | Population | Housing prices | Asset prices | Private savings | Household credit
Author's keyword(s): house prices | economics of Religion | asset price cycles
 
English  
    Published:   March 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009057   Pages:   30
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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