OBSERVING SUNSPOTS AT HOME

What drives short-run booms and busts in the housing market? In this p aper, I suggest that speculation could cause cyclical movements around the fundamental long-run price. Such speculation arises from the exis tence of stationary sunspots. However, sunspots are not ubiquitous and can often be mitigated by appropriate government policies. I thus der ive a tax policy which eliminates sunspots as follows. if housing and other consumption are Auspitz-Lieben complements (substitutes), then t here should be a net tax (subsidy) to housing. Finally, I show how sun spots could have affected Japanese housing prices in 1986-1992 when a different tax policy was followed. (C) 1997 Academic Press.