Market Responses to the Panic of 2008
34 Pages Posted: 31 Oct 2008 Last revised: 23 Dec 2022
Date Written: October 2008
Abstract
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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
How Large is the Housing Wealth Effect? a New Approach
By Christopher D. Carroll, Misuzu Otsuka, ...