A glow worm shines on the dismal (non-)science. "(A) detailed bottom-up model of the housing market shows the bubble in a new light. Unlike conventional top-down models, which show gentle self-correction, (this) ‘agent-based model’ showed the bubble bursting and markets crashing. (It) modelled various policy responses to the housing bubble using real data. Conventional wisdom has been that sustained low interest rates following the 2000 dot-com crash were the primary cause of the housing bubble. But in the model raising the interest rates did not prevent a bubble forming, but tighter regulation of banks almost completely eradicated it.
This suggests better ways to frame economic policy in relation to the housing market. But, in coming years, similar work will undoubtedly highlight ways to improve policy in other areas."