Real Estate and the Great Crisis: Lessons for Macroprudential Policy

17 Pages Posted: 30 Nov 2018

See all articles by John V. Duca

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas; Oberlin College

Lilit Popoyan

Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: January 2019

Abstract

Credit conditions have caused real estate booms and busts, owing to an underpricing of credit risk aided by regulatory arbitrage and shadow financing. Across countries, real estate price and credit bubbles have reflected not only inelastic land supply and thin trading, but also the amplification of shocks via backward‐looking price expectations and financing based on distorted prices. Macroprudential lessons from the Great Crisis include preventing excess real estate financing and limiting the amplification and correlation of risks. Nonetheless, the costs and benefits of recent regulations require re‐evaluation amid an ongoing need to address correlated risks from shadow financing and securitization.

JEL Classification: G28, E3, R31, R33, R38

Suggested Citation

Duca, John V. and Popoyan, Lilit and Wachter, Susan M., Real Estate and the Great Crisis: Lessons for Macroprudential Policy (January 2019). Contemporary Economic Policy, Vol. 37, Issue 1, pp. 121-137, 2019, Available at SSRN: https://ssrn.com/abstract=3293191 or http://dx.doi.org/10.1111/coep.12260

John V. Duca (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Oberlin College

Oberlin, OH 44074
United States

Lilit Popoyan

Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri Della Liberta 33
Pisa, Pisa 56127
Italy

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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