Rethinking Housing Bubbles: The Role of Household and Bank Balance Sheets in Modeling Economic Cycles

Steven D. Gjerstad; Vernon L. Smith

doi:10.1017/CBO9780511979194

In this highly original piece of work, Steven D. Gjerstad and Nobel Laureate Vernon L. Smith analyze the role of housing and its associated mortgage financing as a key element of economic cycles. The authors combine data from both laboratory and real markets to provide insight into the bubble propensity of real-world economic actors and use novel historical analysis on the Great Recession, the Great Depression, and all of the post-World War II recessions to establish the critical roles of housing, private-capital investment, and household and private institutional balance sheets in economic cycles. They develop a model that incorporates household balance sheets and bank balance sheets and offers insights based on this analysis concerning policy going forward, effectively changing the way economists think about economic cycles.

'This book was a pleasure to read and is highly recommended to anyone interested in financial-economic crises. It offers many intuitive stories of potential causes of the crisis, particularly the pivotal role of the housing market with historical data from the Great Recession, the Great Depression, earlier US recessions and crises in other countries, all nicely illustrated by clear time series plots and graphs and backed up by tables. The book also offers stimulating ideas for behavioral agent-based modeling of the crisis supported by insights and data from laboratory experiments.'

Cars Hommes Source: Journal of Economic Psychology

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Rethinking Housing Bubbles

The Role of Household and Bank Balance Sheets in Modeling Economic Cycles

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Contents

Frontmatter
pp i-iv

Contents
pp v-xii

Acknowledgments
pp xiii-xiv

1 - Economic Crises, Economic Policy, and Economic Analysis
pp 1-19

2 - Goods and Services Markets versus Asset Markets
pp 20-48

3 - Asset Performance
pp 49-84

4 - The Great Depression
pp 85-121

5 - The Postwar Recessions
pp 122-145

6 - What May Have Triggered or Sustained the Housing Bubble (1997–2006)?
pp 146-172

7 - The Bubble Bursts
pp 173-202

8 - Blindsided Experts
pp 203-222

9 - What Might Be Done?
pp 223-250

10 - Learning from Foreign Economic Crises
pp 251-267

11 - Summary: What Have We Learned?
pp 268-286

Index
pp 287-293

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Rethinking Housing Bubbles

The Role of Household and Bank Balance Sheets in Modeling Economic Cycles

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