Investment Hangover and the Great Recession

Rognlie, Matthew; Shleifer, Andrei; Simsek, Alp

doi:10.1257/mac.20160211

Cited by 38 publications

(29 citation statements)

References 73 publications

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“…The net negative effect in construction is consistent withRognlie et al (2018), which predicts that the recovery from housing boom-bust episodes is asymmetric, with the overbuilt sector left behind. That said, the net negative effect in construction appears small and is not estimated to be significantly different from zero.…”

supporting

confidence: 67%

Second-Home Buying and the Housing Boom and Bust

García

2019

FEDS

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The effects of the surge in second-home buying (homeowners acquiring nonprimary residences) on the housing boom and bust remain an open question partly because reliable geographic data is currently unavailable. This paper constructs local data on second-home buying by merging credit bureau data with mortgage servicing records. The identification strategy exploits the fact that the vacation share of housing in 2000 predicts second-home origination shares during the boom years, while also uncorrelated with other boom-bust drivers including proxies for local housing expectations, the use of alternative and privately securitized mortgages, and supply constraints. Areas with plausibly exogenous increases in second-home buying experienced a sharper boom and bust. Overall, second-home buying could explain about 30 percent and 10 percent of the run-up in construction employment and house prices, respectively, from 2000 to 2006.JEL codes: R12, R21, R31

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supporting

confidence: 67%

Second-Home Buying and the Housing Boom and Bust

García

2019

FEDS

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“…Some papers add Keynesian elements to financial frictions, such as the zero lower bound on interest rates or aggregate demand effects (e.g., Eggertsson and Krugman (), Rognlie, Shleifer, and Simsek ()).…”

mentioning

confidence: 99%

Diagnostic Expectations and Credit Cycles

Bordalo¹,

Gennaioli²,

Shleifer

2018

The Journal of Finance

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460

238

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We present a model of credit cycles arising from diagnostic expectations-a belief formation mechanism based on Kahneman and Tversky's representativeness heuristic. Diagnostic expectations overweight future outcomes that become more likely in light of incoming data. The expectations formation rule is forward looking and depends on the underlying stochastic process, and thus is immune to the Lucas critique. Diagnostic expectations reconcile extrapolation and neglect of risk in a unified framework. In our model, credit spreads are excessively volatile, overreact to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.

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“…In the presence of frictions such as the zero lower bound, over-accumulation of durable goods can generate a recession (see, e.g., Rognlie et al (2015)). The logic of this alternative view is close to the credit supply hypothesis, except that it does not necessarily require an expansion in household debt for the purchase of durable goods.…”

Section: Does Household Debt Expansion Spuriously Reflect Consumptionmentioning

confidence: 99%

Household Debt and Business Cycles Worldwide*

Mian

Sufi

Verner

2017

The Quarterly Journal of Economics

595

425

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An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt.

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Investment Hangover and the Great Recession

Cited by 38 publications

References 73 publications

Second-Home Buying and the Housing Boom and Bust

Second-Home Buying and the Housing Boom and Bust

Diagnostic Expectations and Credit Cycles

Household Debt and Business Cycles Worldwide*

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