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An Agent-Based Model of a Metropolitan Housing Market Linking Micro-Level Behavior to Macro-Level Analysis Sarah Ustvedt Industrial Economics and Technology Management Supervisor: Einar Belsom, IØT Department of Industrial Economics and Technology Management Submission date: June 2016 Norwegian University of Science and Technology
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Problem Description The purpose of this thesis is to develop an agent-based model (ABM) of a metropolitan housing market. An ABM is a computational model where the micro-level behavior of agents is simulated in order to analyse macro-level emergent phenomena. While this approach is commonly applied in fields such as biology, the literature on ABMs in economics is limited. On the topic of modelling the housing market, only a handful attempts exist. The standard models of the housing market, employing regression techniques or the- oretic concepts of equilibrium, failed to predict the boom and bust in the US market leading up to the world-wide financial crisis. These models are often fitted to past data or assume hyper rational, homogeneous agents and may therefore be inadequate when analysing a market bubble. Moreover, they seldom provide insights to the effects of macroeconomic policy. Agent-based modelling is a far more flexible technique, allowing for heterogeneous agents and without the assumption of a predetermined equilibrium state. Hence, an ABM might serve as an alternative to standard models. The goal of this thesis is to implement an ABM of a housing market and perform simulations involving the effect of macroeconomic shocks and policy-making. The model is instantiated to match conditions of a metropolitan area, and is evaluated on historical data from this area. An important objective of the thesis is to assess whether an ABM can provide insights to the housing market that standard models cannot. i
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Preface This Master Thesis is the final work required to obtain a Master of Science degree with specialization in Managerial Economics and Operations Research at the Department of Industrial Economics and Technology Management at the Norwegian University of Science and Technology (NTNU). The choice of topic for this thesis was motivated by an eagerness to explore the power of agent-based modelling, a relatively new approach to simulation. The housing mar- ket, with its complex dynamics and importance to the larger macroeconomy, was an interesting subject for modelling. I have truly enjoyed working on this thesis and hope to get the opportunity to work with similar topics in the future. I would like to thank my supervisor, Associate Professor Einar Belsom, for constructive discussions and assistance throughout the work. Without his invaluable input, the work on this thesis would surely have been less rewarding.
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