Real Estate and the Great Crisis: Lessons for Macro-Prudential Policy
John Duca,
Lilit Popoyan and
Susan Wachter
LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy
Abstract:
From a broad macro-financial structure perspective, overly easy credit conditions gave rise to house price booms and busts in several advanced economies (e.g., Ireland, Spain, and the U.S.), and, more specifically in the U.S., an underpricing of risk made possible by regulatory arbitrage and shadow financing fueled the credit and twin real estate bubbles of the mid-2000s. Across countries and over time bubbles have been particularly acute in real estate markets reflecting not only the relatively inelastic supply of land and thin trading of real estate, but also the amplification of shocks via backward-looking price expectations and the funding of consumption off distorted and elevated prices. The macro-prudential lessons from the Great Crisis highlight the need to prevent the build-up of excess real estate financing and limit the amplification and correlation of real estate risks. And progress has been made in each of these areas through imposing tougher or new restrictions on the choice sets of lenders or of borrowers, with particulars varying across advanced economies. While regulatory reform of banking is going forward, significant challenges remain especially in dealing with correlated risks associated with securitization.
Keywords: Macro-prudential policy; nancial crises; credit crunches; real estate bubbles; regulatory arbitrage; risk-taking (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)
Downloads: (external link)
http://www.lem.sssup.it/WPLem/files/2016-30.pdf (application/pdf)
Related works:
Journal Article: REAL ESTATE AND THE GREAT CRISIS: LESSONS FOR MACROPRUDENTIAL POLICY (2019) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2016/30
Access Statistics for this paper
More papers in LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy Contact information at EDIRC.
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).