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Real Estate And The Great Crisis: Lessons For Macroprudential Policy

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  • John V. Duca
  • Lilit Popoyan
  • Susan M. Wachter

Abstract

Credit conditions have caused real estate booms and busts, owing to an underpricing of credit risk aided by regulatory arbitrage and shadow financing. Across countries, real estate price and credit bubbles have reflected not only inelastic land supply and thin trading, but also the amplification of shocks via backward‐looking price expectations and financing based on distorted prices. Macroprudential lessons from the Great Crisis include preventing excess real estate financing and limiting the amplification and correlation of risks. Nonetheless, the costs and benefits of recent regulations require re‐evaluation amid an ongoing need to address correlated risks from shadow financing and securitization. (JEL G28, E3, R31, R33, R38)

Suggested Citation

  • John V. Duca & Lilit Popoyan & Susan M. Wachter, 2019. "Real Estate And The Great Crisis: Lessons For Macroprudential Policy," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 121-137, January.
  • Handle: RePEc:bla:coecpo:v:37:y:2019:i:1:p:121-137
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    File URL: https://doi.org/10.1111/coep.12260
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    Cited by:

    1. D’Orazio, Paola & Popoyan, Lilit, 2019. "Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?," Ecological Economics, Elsevier, vol. 160(C), pages 25-37.
    2. Atkinson, Tyler & Duca, John V., 2017. "Equity Regulation and U.S. Venture Capital Investment," Working Papers 1707, Federal Reserve Bank of Dallas.

    More about this item

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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