34 Pages Posted: 31 Oct 2008
Date Written: October 2008
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
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