The housing boom and bust: Model meets evidence

Greg Kaplan, Kurt Mitman, Giovanni L. Violante

Research output: Contribution to journalArticlepeer-review

106 Scopus citations


We build a model of the US economy with multiple aggregate shocks that generate fluctuations in equilibrium house prices. Through coun-terfactual experiments, we study the housing boom-bust around the Great Recession, with three main results. First, the main driver of movements in house prices and rents was a shift in beliefs, not a change in credit conditions. Second, the boom-bust in house prices explains half of the corresponding swings in nondurable expenditures through a wealth effect. Third, a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery.

Original languageEnglish (US)
Pages (from-to)3285-3345
Number of pages61
JournalJournal of Political Economy
Issue number9
StatePublished - Sep 1 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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