Market Responses to the Panic of 2008

34 Pages Posted: 31 Oct 2008  

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Lucas Threinen

Independent

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

Mulligan, Casey B. and Threinen, Lucas, Market Responses to the Panic of 2008 (October 2008). NBER Working Paper No. w14446. Available at SSRN: https://ssrn.com/abstract=1292609

Casey B. Mulligan (Contact Author)

National Bureau of Economic Research (NBER)

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University of Chicago ( email )

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Lucas Threinen

Independent

No Address Available

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