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The U.S. housing price bubble: Bernanke versus Taylor

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Listed:
  • Fitwi, Abrar M.
  • Hein, Scott E.
  • Mercer, Jeffrey M.

Abstract

This paper examines the effects of two major macro-economic forces argued by opposing renowned U.S. economists to have contributed most significantly to the U.S. housing price bubble that preceded the recent global financial crisis. The first force examined, as argued by John Taylor, is the Federal Reserve's loose monetary policy stance from 2002 to 2005. The second force examined, as argued by Ben Bernanke, is the substantial global inflow of capital to the U.S. over the same time period. We develop and estimate a reduced form model for U.S. housing prices, and find evidence consistent with both factors’ contributing significantly to the recent macro-housing price behavior in the U.S.

Suggested Citation

  • Fitwi, Abrar M. & Hein, Scott E. & Mercer, Jeffrey M., 2015. "The U.S. housing price bubble: Bernanke versus Taylor," Journal of Economics and Business, Elsevier, vol. 80(C), pages 62-80.
  • Handle: RePEc:eee:jebusi:v:80:y:2015:i:c:p:62-80
    DOI: 10.1016/j.jeconbus.2015.05.001
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Christian Julliard, 2008. "Money Illusion and Housing Frenzies," Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 135-180, January.
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    More about this item

    Keywords

    Monetary policy; Taylor rule deviations; Bernanke; International capital inflows; U.S. housing prices; Financial crisis; Macro-economic forces;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F00 - International Economics - - General - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F39 - International Economics - - International Finance - - - Other
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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