Abstract
Real estate bubbles often trigger financial and economic crisis. U.S. subprime mortgage crisis and the Spanish property bubble, both occurring in 2008, are recent examples whose consequences are still affecting the respective economies. The aim of this paper is to understand if the level of concentration of financial capital has an impact on the real estate bubble formation. We study the issue in a first scenario where mortgage loans are easily granted (subprime mortgages) and in second one with a stricter regulation for the access to credit. Our results show that the combination of capital concentration and easy access to credit gives rise to a strong economic instability and to a highly unequal distribution of wealth.
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Notes
- 1.
The construction project stopped are the less advanced ones.
- 2.
The households with the lowest skills are selected for firing.
- 3.
The annuity factor is generally computed considering the remaining life of the mortgage as \(A = \frac{1} {\frac{1} {4} r_{M}} - \frac{1} {\frac{1} {4} r_{M}\,\big{(1+\frac{1} {4} r_{M}\big)}^{n}}\) where n is the number of remaining quarters in the mortgage life.
- 4.
According to [1], this wealth effect ranges from 5 to 8 %.
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Acknowledgements
The authors would like to acknowledge the financial support of the Icelandic Center for Research (RANNIS), grant no. 110653021. AT also acknowledges projets GV/2012/045 of the Generalitat Valenciana, project Bancaja P11A2010-17, and the Spanish national project ECO2011-23634.
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Teglio, A., Cincotti, S., Erlingsson, E.J., Raberto, M., Stefansson, H., Sturluson, J.T. (2014). Subprime Lending and Financial Inequality in an Agent-Based Model. In: Leitner, S., Wall, F. (eds) Artificial Economics and Self Organization. Lecture Notes in Economics and Mathematical Systems, vol 669. Springer, Cham. https://doi.org/10.1007/978-3-319-00912-4_5
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