National and International Business Cycle Effects of Housing Crises

Housing crises usually go hand in hand with a long lasting recession and a considerable loss in output. We first re-examine the effects of a housing crises on the business cycle based on historical crises. Then we estimate the international spill-over-effects if several huge industrial countries face a housing crisis simultaneously. While the economic impact of the housing crisis in the United States, from a historical perspective, should have bottomed out at the end of 2008 and the business cycle pattern differed significantly from that in a typical crisis, house prices in Great Britain, Spain and France just started to drop at the end of 2007. If we assume that a typical housing crisis occurs in all of these three countries, international transmission effects then would lead to significant losses of GDP growth in several other countries, notably in Europe.

Kiel Institute Expert