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National and International Business Cycle Effects of Housing Crises

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  • Nils Jannsen

Abstract

Housing crises usually go hand in hand with a long-lasting recession and a considerable loss in output. By looking at historical crises, we show that the downturns in the housing markets in the United States, the United Kingdom, Spain, and France, beginning in 2006 and in 2007, were followed by exceptionally strong recessions. Then, we investigate the international transmission effects of housing crises by applying models that stress the importance of the trade channel as a transmission channel. We demonstrate that recessions triggered by housing crises are in general strong enough to lead to significant negative international spillover effects. Further, we show that the housing market downturns in the above four countries are sufficient to explain to a considerable degree the recessions that took place all over the world during the Great Recession of 2008 / 2009 and in particular in European countries via international spillover effects. However, these housing crises are not sufficient to explain the steep downturn that could be observed in many countries during the winter half year 2008 / 2009.

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Bibliographic Info

Article provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.

Volume (Year): 56 (2010)
Issue (Month): 2 ()
Pages: 175-206

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Handle: RePEc:aeq:aeqaeq:v56_y2010_i3_q3_p175-206

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Keywords: Housing Crisis; Business Cycle; International Transmission;

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References

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  1. Dées, Stéphane & di Mauro, Filippo & Pesaran, Hashem & Smith, Vanessa, 2005. "Exploring the international linkages of the euro area: a global VAR analysis," Working Paper Series 0568, European Central Bank.
  2. Dees, S. & Holly, S. & Pesaran, M.H. & Smith, L.V., 2007. "Long Run Macroeconomic Relations in the Global Economy," Cambridge Working Papers in Economics 0661, Faculty of Economics, University of Cambridge.
  3. M. Hashem Pesaran & Til Schuermann & Scott M. Weiner, 2001. "Modelling regional interdependencies using a global error-correcting macroeconometric model," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B4-1, International Conferences on Panel Data.
  4. Tilak Abeysinghe & Kristin J. Forbes, 2001. "Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia," NBER Working Papers 8600, National Bureau of Economic Research, Inc.
  5. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
  6. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series 0364, European Central Bank.
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Cited by:
  1. Jens Hogrefe & Nils Jannsen & Carsten-Patrick Meier, 2010. "The Ugly and the Bad: Banking and Housing Crises Strangle Output Permanently, Ordinary Recessions Do Not," Kiel Working Papers 1586, Kiel Institute for the World Economy.
  2. Jonas Dovern & Björn van Roye, 2013. "International transmission of financial stress: evidence from a GVAR," Kiel Working Papers 1844, Kiel Institute for the World Economy.
  3. Jannsen, Nils & Scheide, Joachim, 2010. "Growth patterns after the crisis: This time is not different," Kiel Policy Brief 22, Kiel Institute for the World Economy (IfW).
  4. Brixiova, Zuzana & Vartia, Laura & Wörgötter, Andreas, 2010. "Capital flows and the boom-bust cycle: The case of Estonia," Economic Systems, Elsevier, vol. 34(1), pages 55-72, March.
  5. Zuzana Brixiova & Laura Vartia & Andreas Woergoetter, 2009. "Capital Inflows, Household Debt And The Boom Bust Cycle In Estonia," William Davidson Institute Working Papers Series wp965, William Davidson Institute at the University of Michigan.
  6. Dufrénot, G. & Malik, S., 2010. "The changing role of house price dynamics over the business cycle," Working papers 309, Banque de France.
  7. Christian Aßmann & Jens Hogrefe & Nils Jannsen, 2009. "Costs of Housing Crises: International Evidence," Kiel Working Papers 1524, Kiel Institute for the World Economy.
  8. Nicole Aregger & Martin Brown & Enzo Rossi, 2013. "Transaction Taxes, Capital Gains Taxes and House Prices," Working Papers 2013-02, Swiss National Bank.
  9. Jannsen, Nils & Scheide, Joachim, 2010. "Growth patterns after the crisis: This time is not different," Open Access Publications from Kiel Institute for the World Economy 47873, Kiel Institute for the World Economy (IfW).
  10. Gern, Klaus-Jürgen & Jannsen, Nils & van Roye, Björn & Scheide, Joachim, 2010. "Erholung der Weltwirtschaft verliert an Schwung," Open Access Publications from Kiel Institute for the World Economy 45574, Kiel Institute for the World Economy (IfW).

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