1. HOUSE PRICES, EXPECTATIONS, AND TIME-VARYING FUNDAMENTALS: DISCUSSION Presented by A.G. Malliaris AMERICAN ECONOMIC ASSOCIATION Allied Social Science Associations Annual Meetings San Diego, California, January 3-6, 2013

2. Outline of Discussion Overview of Housing Prices The Financial Crisis Modeling Choices Results Comments

5. US Housing Bubble and Monetary Policy Controversial Issue Taylor’s Views The Fed’s Views More Practically: How to Respond to a Growing Bubble? The Asymmetric Approach: High Cost Ex-post The Symmetric Approach: Cost Ex-ante

6. Housing Bubbles and Institutions High Transactions Costs Social Policies Favoring Housing Forecasting Value of Collateral Low Down Payment Compared to Equity Difficulty to Sell Short Tracking the Banks, Households, Firms, Public Sector

9. Exhibit 4. US Economy Is still a Long Way from Previous Peak 9

10. Exhibit 5. Euro-Zone Economy Is still a Long Way from Previous Peak 10

11. Exhibit 11. Japan’s De-leveraging with Zero Interest Rates Lasted for 10 Years 11

16. Important Contribution

17. Behavioral Issues

18. Concluding Comments Paper makes an important contribution by proposing and calibrating 3 models In view of major shifts in monetary policy does it make sense to check for robustness? Consider 1960 to 1994 and 1995 to 2011? Do the 3 models have implications for monetary policy? Possible use of Behavioral Finance Arguments such as momentum?