The Global Financial Crisis And The Macro Economy

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The global financial crisis has attracted considerable attention in recent literature. It is well known that the true origins of this financial crisis is that the over-borrowing of US households, especially to finance housing. It had serious affected the financial sector and the macro-economy. According to Shiller (2007), the main reason of the sub-prime mortgage crisis and the worldwide economic and financial crisis of 2007-2009 is the housing bubble. He also believes that the preceding bubble created dynamics and the dynamics of the crisis were self-perpetuating, although in the opposite direction. From the literature, we can see that conventional housing economics research virtually ignores interactions with the
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They contain several interesting dimensions such as housing prices, housing investment and housing wealth. In order to state their importance, Iacoviello (2010) focus on seven interesting facts about housing.

1. Housing wealth
The housing wealth refers to the market value of all residential capital stock, no matter rented or owned. It is also an important component of national wealth. In most developed economies, housing wealth takes up almost half of household wealth. The figure below shows this phenomenal in the United States. The data selected from 1952 to 2008.

Figure 1: Housing wealth and Non-housing wealth in the US

2. Housing wealth & GDP
Compare housing wealth and GDP, we can see that housing wealth is larger than GDP. Housing wealth also fluctuates over time. Figure 2 illustrates the ratio of nominal housing wealth to nominal GDP in the US. From the figure, we can find that the ratio of housing wealth to GDP has averaged around 1.5 between 1952 and 2008. However, it has moved dramatically throughout this period. At the beginning of these periods, it was equal to 1.28; we can see the lowest value happen in 1962 and in 2005 it reaches the highest value of 2.26. It is at the peak of the recent housing boom. Figure 2: Ratio of Housing Wealth to GDP

3. Housing wealth &
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