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Forty years of real-estate bubbles in the US and the macroeconomy: a Keynesian perspective

Author

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  • Herbert Walther

    (Vienna University of Economics and Business, Austria)

Abstract

This paper presents a dynamic, non-linear, stock–flow consistent aggregate Keynesian model with a banking sector, a household sector, a government sector, and a real-estate sector, to study the interactions between booms and busts in the real-estate sector and the macroeconomy. Using this model we try to simulate some ‘stylized facts’ about the US economy observable during the last four decades. It is argued that for various reasons house-price volatility in the US has increased since the 1980s: house prices seem to have followed a ‘cobweb’ pattern of accelerating instability, leading to the climax of the financial crises in 2007/2008. A new run-up of house prices has already started, pointing towards a looming bubble ahead. The US economy seems to have become addicted to asset-price bubbles as the driving force of the business cycle. It is argued that various institutional changes, which can be linked to the dominant economic ideology, are responsible for these developments.

Suggested Citation

  • Herbert Walther, 2019. "Forty years of real-estate bubbles in the US and the macroeconomy: a Keynesian perspective," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 16(3), pages 381-402, December.
  • Handle: RePEc:elg:ejeepi:v:16:y:2019:i:3:p381-402
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    Citations

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    Cited by:

    1. Di Bucchianico, Stefano, 2021. "Inequality, household debt, ageing and bubbles: A model of demand-side Secular Stagnation," IPE Working Papers 160/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

    More about this item

    Keywords

    financial instability; real-estate price bubbles; business cycles;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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