Working Paper: NBER ID: w20874
Authors: Alejandro Justiniano; Giorgio E. Primiceri; Andrea Tambalotti
Abstract: The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust.
Keywords: No keywords provided
JEL Codes: E32; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| looser lending constraints (G21) | increase in credit supply (E51) |
| increase in credit supply (E51) | significant rise in household debt (G51) |
| increase in credit supply (E51) | significant rise in home prices (R31) |
| slackening of collateral constraints (G33) | fall in home prices (R31) |
| progressive relaxation of lending constraints (F65) | increase in household debt without raising debt-to-collateral ratio (G59) |
| interaction between lending and borrowing constraints (F65) | influence on housing market dynamics (R31) |
| deterioration of credit standards (G21) | decline in house prices (R31) |