The financial sector and crises - The housing feedback process and the 3-equation model
4 important questions on The financial sector and crises - The housing feedback process and the 3-equation model
Describe the impact of long-run supply constraints on the formation of house price bubbles
Why would it be reasonable to infer that a bubble is underway if one observed steeply rising house prices?
How can a house-price based boom turn into a financial crisis?
2. Houses are repossessed by the bank and sold at a loss.
3. The net worth of banks falls due to the losses they incur on mortgage loans.
4. A bank can become insolvent: the shrinkage of the value of its assets wipes out its capital cushion.
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Describe the link between the housing feedback process and the 3-equation model
Figure 6.9
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