Betting the House: Bank Credit, Real Estate Prices, and Financial Crises (1870-2010)
02. Jul 2014
Center for Financial Studies at Goethe University, and the Institute for Bank Historical Research, Frankfurt/M.
What does macroeconomic history have to say about the much debated link between loose monetary conditions, credit growth and housing booms? Understanding the sources of house price fluctuations and their effect on household balance sheets and the health of financial intermediaries has become a top priority for macro-economists and policymakers. The financial history of the past 140 years shows that loose monetary conditions have regularly led to booms in real estate lending and house prices which in turn have materially heightened the risk of banking crises.