Q2. What are the future works in this paper?
Several promising avenues for future research arise from this paper ’ s results. A second direction for future research is to explore the implications of naive filtering for con8The rational buyer begins with a prior on x0 which the authors seed randomly, as explained above. This overconsumption may be important for understanding the extent of leverage homeowners took on during the boom. Supply responses have the potential to temper price increases caused by naive homebuyers.
Q3. What is the value of r/(r + ) = 0.03?
For instance, if the annual persistence of growth shocks is 0.3 (the value of income growth persistence at the metro-area level), then λ = 1.2; a value of r = 0.04 then leads to r/(r + λ) = 0.03.
Q4. What is the rational buyer’s posterior on the level of demand?
When N →∞ and growth rates do not persist (λ→∞), the rational buyer’s posterior on the level of demand is a telescoping sum of past prices:E(Dt−δ|Ωpt ∪ Ωst ∪ Ωxt ) = ( − α1− α)n−1 rpt−nδ − α0Dt01− α0 + n−1∑ m=1 ( − α 1− α )m−1 rpt−mδ 1− α ,whereα = µr + µ σ2a σ2a + δσ 2
Q5. What is the weight of Ag on the growth rate expectation in the pricing formula in Lemma?
Lemma 3. The weight Ag on the growth rate expectation in the pricing formula in Lemma 1 is given by Ag = [r(r + λ + φµ)] −1, where φ denotes the perceived probability that future buyers aresimple and do not use prices to draw inference, and 1 − φ is the probability that future buyers are sophisticated enough for the law of iterated expectations to hold.
Q6. How do the authors compute the expected change in market values?
To compute the expected change, the authors use Proposition 4 to extend the expected one-year change conditional on a lagged one-year change (which is 0.20) to further years.
Q7. how many units of time does the buyer know the average price of a house?
In particular, she learns the average price pt′ every δ units of time before her purchase, that is, for t ′ = t− δ, t− 2δ, and so forth.
Q8. What is the naive buyer’s posterior on the lagged level of demand?
A naive buyer’s posterior on the lagged level of demand is E(Dt−δ | Ω′i,t) = rpt−δ, and her estimate of the lagged growth rate equals E(gt−δ | Ω′i,t) = r(pt−δ − pt−2δ)λe−δλ/(1− e−δλ).
Q9. What is the normal mean noise of the news at t?
The authors write this news as H0xt′ + vt′ , where H0 = ( 1 01 0 ) and vt′ is normal mean zero noise with covarianceR0 = ( σ2a/N 00 σ2s) .
Q10. What is the correlation of price changes on once-lagged changes?
Then the correlation of price changes on once-lagged changes, given by Corr(∆pt,∆pt−δ), is positive if β1 > 0 and is strictly increasing in β1.
Q11. What is the role of non-standard beliefs in shaping housing dynamics?
The role that the bargaining process can play in shaping housing dynamics has been examined elsewhere (Anenberg and Bayer, 2013; Guren, 2014) and the authors are interested in particularly examining the role of non-standard beliefs.
Q12. How many respondents explicitly mention house prices?
A significant portion of respondents, around 30%, explicitly mention house prices to justify their view (Piazzesi and Schneider, 2009).
Q13. How does the weight Ag on future prices in Lemma 1 be determined?
The weight Ag on growth expectations in the pricing formula in Lemma 1 is determined by equation (4), and in turn by the buyer’s expectation Ei,tpT of future prices.