The preceding boom and current bust in the housing market have been blamed on the false expectations of market participants that house prices would always increase. While this expectation was historically correct (the Case-Shiller for the United States never decreased until now), this is obviously wrong for local markets. So, it cannot be true that everyone would buy the myth of ever increasing house prices. Can boom and bust then still happen?
Hajime Tomura shows that it is possible even when market participants have heterogeneous beliefs. And these fluctuations also impact the rest of the economy, just like we observe now. The model is rich enough to show that a monetary policy that is actively fighting inflation exacerbates these boom-bust cycles. So maybe it is a good idea that many central banks are putting aside inflation considerations for the moment.