COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1852

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

John Geanakoplos, Robert Axtell, Doyne J. Farmer, Peter Howitt, Benjamin Conlee,
Jonathan Goldstein, Matthew Hendrey, Nathan M. Palmer, and Chun-Yi Yang

March 2012

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.

Keywords: Agent based models, Housing prices, Boom and bust, Leverage, Interest rates, Foreclosures, Systemic risk

JEL Classification: E3, E31 E32, E37, E44, E63, R2, R20, R21, R23, R28, R3, R30, R31, R38