Market Responses to the Panic of 2008
Casey B. Mulligan
University of Chicago; National Bureau of Economic Research (NBER)
University of Chicago - Department of Economics
NBER Working Paper No. w14446
We model the panic of 2008 as part of the wealth and substitution effects deriving from a housing price crash that began in 2006. The dissipation of the wealth effect stimulates a reorganization of the banking industry and increases in employment, GDP, and unemployment. The release of resources from the housing sector lowers investment goods prices, and thereby devalues existing non-residential capital while stimulating non-residential investment. These predictions are compared with measured U.S. economic performance from 2006 to 2008 Q2.
Number of Pages in PDF File: 34
Date posted: October 31, 2008
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