NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market Responses to the Panic of 2008

Casey Mulligan, Luke Threinen

NBER Working Paper No. 14446
Issued in October 2008
NBER Program(s):   EFG   ME   PE

We model the panic of 2008 as part of the wealth and substitution effects deriving from a housing price crash that began in 2006. The dissipation of the wealth effect stimulates a reorganization of the banking industry and increases in employment, GDP, and unemployment. The release of resources from the housing sector lowers investment goods prices, and thereby devalues existing non-residential capital while stimulating non-residential investment. These predictions are compared with measured U.S. economic performance from 2006 to 2008 Q2.

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Document Object Identifier (DOI): 10.3386/w14446

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