How to Deal with Real Estate Booms: Lessons from Country Experiences

By Christopher Crowe, Giovanni Dell'Ariccia, Deniz Igan, Pau Rabanal. Social Science Research Network, 2011

464 citations recorded by the source corpus.

The financial crisis showed, once again, that neglecting real estate booms can have disastrous consequences. In this paper, we spell out the circumstances under which a more active policy agenda on this front would be justified. Then, we offer insights on the pros and cons as well as implementation challenges of various policy tools that can be used to contain the damage to the financial system and the economy from real estate boom–bust episodes. These insights derive from econometric analysis, when possible, and case studies of country experiences. Broadly, booms financed through credit and involving leverage are more likely to warrant a policy response. In that context, macroprudential measures can be targeted more precisely to specific sources of risk, but they may prove ineffective because of circumvention. In that case, monetary policy may have to be used to lean against the wind.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/8a018e65170e01aff948a4ab6f437b5bce8c9649

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Financial Stability and Monetary Policy: How Closely Interlinked? (2014, background): “(30)Overviews of the evidence are also available in Crowe et al. (2011) and Committee on the Global Financial System (2012, annex 4).”
Macroprudential Policy - A Literature Review (2012, unknown): “(2004), Crowe et al. (2011a) and Igan and Kang (2011) provide empirical evidence on the impact”
Policies for Macrofinancial Stability: Options to Deal with Real Estate Booms (2011, background): “In contrast, denial rates for subprime loans (typically more linked to speculative purchases) do not seem to move systematically with monetary policy (see Crowe et al., 2011).”
Macroprudential Policies and Housing Prices-A New Database and Empirical Evidence for Central, Eastern, and Southeastern Europe (2012, methodology): “22 Crowe et al. (2011) also find only small effects of interest rates on housing prices in a large cross-country sample using a VAR approach, while Dell’Ariccia et al.”
Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies (2016, methodology): “We also consulted Borio & Shim (2007), a survey by the Committee on the Global Financial System (CGFS) on macroprudential policy conducted in December 2009, Hilbers et al. (2005), Crowe et al. (2011), Lim et al. (2011), and Tovar et al. (2012).”
An Overview of Macroprudential Policy Tools (2014, unknown): “Crowe et al. (2011) find that policies such as maximum LTV have the best chance to curb a real estate boom.”
Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area (2013, background): “This turns out to be a problem because, as Claessens et al. (2008) and Crowe et al. (2011) show, the combination of credit and housing boom episodes ampli es the business cycle and in particular, the bust side of the cycle, measured as the amplitude and duration of recessions.”
Macroprudential policy and bank risk (2018, background): “…et al (2013) complement and cross-check official sources and documents with Borio and Shim (2007), survey by the Committee on the Global Financial System (CGFS) on macroprudential policy conducted in December 2009, Hilbers et al (2005), Crowe et al (2011), Lim et al (2011), and Tovar et al (2012).”
The Use and Effectiveness of Macroprudential Policies: New Evidence (2015, unknown): “While not necessarily sufficient o reduce the adverse effects of housing booms and subsequent usts - Crowe et al. (2011) show that house price booms associated ith increased leverage are the most destructive—these findings do PRESS Stability xxx (2015) xxx–xxx 11 nevertheless suggest that…”
How Long Do Housing Cycles Last? A Duration Analysis for 19 OECD Countries (2011, background): “From a practical perspective, this paper contributes to the current policy debate on how to deal with real estate booms (Allen and Carletti, 2010; Crowe et al., 2011).”
What do we know about the effects of macroprudential policy (2018, unknown): “To give an example, Table 3, taken from Crowe et al (2011a), organizes events studies on the impact of macroprudential measures aimed at dealing with real estate booms.”
Where the Risks Lie: A Survey on Systemic Risk (2017, unknown): “…for a discussion of the interaction between macroprudential tools and other instruments, such as monetary policy or microprudential regulation, and Crowe et al. (2013) for a survey of macroprudential tools aimed at preventing real estate boom and bust cycles. ow nloaded from https://academ…”