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Contributions of Economists to the Housing-Price Bubble

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  • Martha A. Starr

Abstract

There has been much discussion of what economists could have done differently to help avert the 2007 financial crisis and "Great Recession" that followed. One issue concerns information supplied by economists to the general public about causes of high appreciation in home prices and their likely future course, as good information could have helped the public hedge their finances against downside risks while bad information may have encouraged them to take on too much risk. This paper analyzes data on views of economists quoted in California newspapers as to whether bubbles were forming in the state's housing markets. We find that the public was fairly decently served by economists offering their views via the media although with some significant problems of biased forecasts not made in good faith, and of inattention to concerns about "harm avoidance" that ought to apply when economists share their opinions in this way.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Economic Issues.

Volume (Year): 46 (2012)
Issue (Month): 1 (March)
Pages: 143-172

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Handle: RePEc:mes:jeciss:v:46:y:2012:i:1:p:143-172

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Related research

Keywords: economics profession; professional ethics; housing bubbles; economic news;

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References

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  1. Jan Kregel, 2008. "Using Minsky's Cushions of Safety to Analyze the Crisis in the U. S. Subprime Mortgage Market," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 37(1), pages 3-23, April.
  2. Joseph Engelberg & Charles F. Manski & Jared Williams, 2006. "Comparing the Point Predictions and Subjective Probability Distributions of Professional Forecasters," NBER Working Papers 11978, National Bureau of Economic Research, Inc.
  3. Klaus F. Zimmermann, 2004. "Advising Policymakers through the Media," The Journal of Economic Education, Taylor & Francis Journals, vol. 35(4), pages 395-406, October.
  4. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports 218, Federal Reserve Bank of New York.
  5. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, October.
  6. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 563-580, July.
  7. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February.
  8. Kristopher S. Gerardi & Christopher L. Foote & Paul S. Willen, 2010. "Reasonable people did disagree : optimism and pessimism about the U.S. housing market before the crash," Public Policy Discussion Paper 10-5, Federal Reserve Bank of Boston.
  9. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  10. Alan Blinder & Alan Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Working Papers 875, Princeton University, Department of Economics, Industrial Relations Section..
  11. Masahiro Ashiya, 2009. "Strategic bias and professional affiliations of macroeconomic forecasters," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(2), pages 120-130.
  12. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1449-1496, November.
  13. Marc T. Law & Sukkoo Kim, 2004. "Specialization and Regulation: The Rise of Professionals and the Emergence of Occupational Licensing Regulation," NBER Working Papers 10467, National Bureau of Economic Research, Inc.
  14. David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Birgitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Discussion Papers 09-03, University of Copenhagen. Department of Economics.
  15. Gerald Epstein & Jessica Carrick-Hagenbarth, 2010. "Financial Economists, Financial Interests and Dark Corners of the Meltdown: It’s Time to Set Ethical Standards for the Economics Profession," Working Papers wp239_revised, Political Economy Research Institute, University of Massachusetts at Amherst.
  16. V. Tambovtsev., 2009. "Financial Crisis and Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 1.
  17. Jane Dokko & Brian Doyle & Michael T. Kiley & Jinill Kim & Shane Sherlund & Jae Sim & Skander Van den Heuvel, 2009. "Monetary policy and the housing bubble," Finance and Economics Discussion Series 2009-49, Board of Governors of the Federal Reserve System (U.S.).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Economists did see the bubble coming
    by Economic Logician in Economic Logic on 2011-04-27 14:39:00

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