Working Paper: NBER ID: w13471
Authors: Martin S. Feldstein
Abstract: The housing sector is now (September 2007) at the root of three distinct but related problems: (1) a sharp decline in house prices and the related fall in home building; (2) a subprime mortgage problem that has triggered a substantial widening of all credit spreads and the freezing of much of the credit markets; and (3) a decline in home equity loans and mortgage refinancing that could cause greater declines in consumer spending. Each of these could by itself be powerful enough to cause an economic downturn. The combination could cause a very serious recession unless there are other offsetting forces. In this paper, I discuss each of these and then comment on the implications for monetary policy.
Keywords: housing; credit markets; business cycle; monetary policy
JEL Codes: E3; E4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in house prices (R31) | reduction in home building (R38) |
| reduction in home building (R38) | economic recession (F44) |
| subprime mortgage problems (G21) | widening of credit spreads (G19) |
| decreased home equity withdrawals (G51) | reduction in consumer spending (D12) |