Journal Article

Costs of Housing Crises: International Evidence

Bulletin of Economic Research

This paper analyzes the costs of housing crises in terms of GDP growth and the economic

conditions under which crises are particularly costly. Housing crises are often followed by recessions

that are longer than other recessions. According to empirical estimates, a housing crisis

reduces the GDP growth rate in the following year on average by two percentage points and has

still a considerable negative impact in the second year. One important channel through which

the effect of housing crises is passed on seems to be the banking sector. In addition, our results

suggest that negative wealth effects possibly cause further reductions in GDP.

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