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Transmission of housing bubbles among industrial sectors

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  • Wan, Junmin

Abstract

We find that housing bubbles are accompanied by sluggish demand in non-housing-related sectors both currently in China and previously in Japan. To explain this, we construct a theory to model the differential impact of housing bubbles on housing-related and non-housing-related industrial sectors by combining the neoclassical framework of general equilibrium with the input–output table. We also find that the housing bubble increases investments and output prices in housing-related sectors (crowding-in effect) while simultaneously reducing investments and output prices in non-housing-related sectors (crowding-out effect). Our theoretical findings could explain the negatively significant correlation between housing or land prices and the Consumer Price Index (CPI) during China and Japan’s bubble economy eras. Hence, this paper provides new insights into why and how the housing bubble distorts the economy differentially, for different industrial sectors.

Suggested Citation

  • Wan, Junmin, 2024. "Transmission of housing bubbles among industrial sectors," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 692-701.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:692-701
    DOI: 10.1016/j.iref.2023.08.001
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    More about this item

    Keywords

    Housing bubble; Industrial sector; Input–output table; Overinvestment; Underinvestment; Crowding-in; Crowding-out;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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