The Housing Boom and Bust: Model Meets Evidence
By Greg Kaplan, K. Mitman, Giovanni L. Violante. Journal of Political Economy, 2017
399 citations recorded by the source corpus.
We build a model of the US economy with multiple aggregate shocks that generate fluctuations in equilibrium house prices. Through counterfactual experiments, we study the housing boom-bust around the Great Recession, with three main results. First, the main driver of movements in house prices and rents was a shift in beliefs, not a change in credit conditions. Second, the boom-bust in house prices explains half of the corresponding swings in nondurable expenditures through a wealth effect. Third, a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/c640ec16b5f156ae338944fca3345639705c4545
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Citations in the corpus
- Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1 (2020, neutral): “…policy response (and its economic impact) to the Covid-19 pandemic include work that examines social distancing rules (Barro et al., 2020), lockdowns (Alon et al., 2020; Arnon et al., 2020; Kaplan et al., 2020; Moser and Yared, 2020), and the Paycheck Protecton Program (Joaquim and Netto, 2020).”
- Credit Supply and Housing Speculation (2018, neutral): “(2012), Landvoigt (2016), Kaplan et al. (2017). For example, an overall neglect of downside risks as in Gennaioli et al. (2012) could explain the rise in asset-backed securitization across many markets from 2003 to 2006.”
- Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession (2017, background): “Pessimistic Housing Beliefs Kaplan et al. (2019) resolve the counterfactual negative co-movement between house prices and consumption induced by preference shocks during a simulated boom-bust episode by instead shocking households’ beliefs about the likelihood of a future change in the taste for hou”
- Do School Spending Cuts Matter? Evidence from the Great Recession (2018, neutral): “…following 18 months, the unemployment rate increased by over 5 percentage points (Evans et al., 2017) and housing prices fell by about 30 percent (Kaplan et al. 2017; Hurd and Rohwedder 2010).10 The sudden reduction in state revenues due to lower sales and income taxes led to cuts in state…”
- The Effect of House Prices on Household Borrowing: A New Approach (2019, neutral): “Motivated by such macro patterns, a leading narrative about the Great Recession argues that house price swings drive borrowing and consumption (for example, Mian and Sufi 2011, 2014; Mian, Rao, and Sufi 2013; Kaplan, Mitman, and Violante 2017).”