@techreport{NBERw12810,
 title = "Money Illusion and Housing Frenzies",
 author = "Markus K. Brunnermeier and Christian Julliard",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "12810",
 year = "2006",
 month = "December",
 URL = "http://www.nber.org/papers/w12810",
 abstract = {A reduction in inflation can fuel run-ups in housing prices if people suffer from money illusion. For example, investors who decide whether to rent or buy a house by simply comparing monthly rent and mortgage payments do not take into account that inflation lowers future real mortgage costs. We decompose the price-rent ratio in a rational component -- meant to capture the proxy effect and risk premia -- and an implied mispricing. We find that inflation and nominal interest rates explain a large share of the time-series variation of the mispricing, and that the tilt effect is unlikely to rationalize this finding.},
}