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Projecting post-crisis house and equity prices since the 1870s:not all crises are alike

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  • Rafiq, Shuddhasattwa

Abstract

This paper projects house and equity prices following different types of macroeconomic shocks since the 1870s in 17 western economies. In doing so, we classify macroeconomic downturns into three distinct groups: normal recessions, financial recessions, and disasters. By combining three newly available historical data sets spanning 143 years and by employing local projection technique, this study finds that financial recessions have the most detrimental effect and cause substantial decreases in house prices, stock prices and construction costs. Post-crisis stock price declines are observed through the whole sample period, but both house prices and construction costs were the most vulnerable to crises after WWII. The study also finds that stock prices drop substantially immediately after financial crises and rebound within four to six years, while shocks to house prices are more persistent. This asymmetry of persistence and magnitude of shocks among housing and equity prices might have had a substantial impact on post-recession wealth re-distribution since WWII as lower and middle class families are more likely to have their wealth invested in a home rather than in other financial investments like stocks.

Suggested Citation

  • Rafiq, Shuddhasattwa, 2020. "Projecting post-crisis house and equity prices since the 1870s:not all crises are alike," MPRA Paper 103164, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:103164
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial crisis; Normal recessions; House prices; Stock prices; Local projection.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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