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Housing, Credit Markets and the Business Cycle

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  • Martin S. Feldstein

Abstract

The housing sector is now (September 2007) at the root of three distinct but related problems: (1) a sharp decline in house prices and the related fall in home building; (2) a subprime mortgage problem that has triggered a substantial widening of all credit spreads and the freezing of much of the credit markets; and (3) a decline in home equity loans and mortgage refinancing that could cause greater declines in consumer spending. Each of these could by itself be powerful enough to cause an economic downturn. The combination could cause a very serious recession unless there are other offsetting forces. In this paper, I discuss each of these and then comment on the implications for monetary policy.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13471.

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Date of creation: Oct 2007
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Handle: RePEc:nbr:nberwo:13471

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Cited by:
  1. Gern, Klaus-Jürgen & Jannsen, Nils & Sander, Birgit & Scheide, Joachim & van Roye, Björn, 2008. "Abkühlung der Weltkonjunktur," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 4305, Kiel Institute for the World Economy (IfW).
  2. Yuliya Demyanyk & Otto Van Hemert, 2011. "Understanding the Subprime Mortgage Crisis," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 24(6), pages 1848-1880.
  3. Igan, Deniz & Kabundi, Alain & Nadal De Simone, Francisco & Pinheiro, Marcelo & Tamirisa, Natalia, 2011. "Housing, credit, and real activity cycles: Characteristics and comovement," Journal of Housing Economics, Elsevier, Elsevier, vol. 20(3), pages 210-231, September.
  4. Oikarinen, Elias, 2009. "Interaction between housing prices and household borrowing: The Finnish case," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(4), pages 747-756, April.
  5. Gelain, Paolo & Lansing, Kevin J. & Mendicino, Caterina, 2012. "House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy," Dynare Working Papers 21, CEPREMAP.
  6. Osberg, Lars, 2013. "Instability implications of increasing inequality: Evidence from North America," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 918-930.
  7. Lansing, Kevin, 2009. "Speculative Bubbles and Overreaction to Technological Innovation," Journal of Financial Transformation, Capco Institute, Capco Institute, vol. 26, pages 51-54.
  8. Natalia T. Tamirisa & Alain N. Kabundi & Deniz Igan & Francisco Nadal-De Simone & Marcelo Pinheiro, 2009. "Three Cycles," IMF Working Papers, International Monetary Fund 09/231, International Monetary Fund.
  9. Kevin J. Lansing, 2008. "Speculative growth and overreaction to technology shocks," Working Paper Series, Federal Reserve Bank of San Francisco 2008-08, Federal Reserve Bank of San Francisco.

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