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Article
Financial Crisis and Credit Crunch in the Housing Market
Journal of Real Estate Finance and Economics
  • Fukuo Albert Wang, University of Dayton
  • Ting Zhang, University of Dayton
Document Type
Article
Publication Date
8-1-2014
Abstract
We investigate the recent financial crisis with an emphasis on the interlock among housing, mortgage, and credit markets. Following Geanakoplos (Econometric Society Monographs 2:170–205, 2003, 2010), we develop a model in which both prices of the mortgage and its collateral are simultaneously and endogenously determined. Our empirical tests confirm the model’s prediction that an adverse change in the risk free rate or the loan recovery rate can trigger the financial crisis as we observed. Finally, we discuss how the pro-cyclical leveraging practice by financial intermediaries can magnify their losses in mortgage-related assets and consequently cause significant contraction in the balance sheets of these firms.
Inclusive pages
256–276
ISBN/ISSN
0895-5638
Comments

Permission documentation is on file.

Publisher
Springer
Peer Reviewed
Yes
Citation Information
Fukuo Albert Wang and Ting Zhang. "Financial Crisis and Credit Crunch in the Housing Market" Journal of Real Estate Finance and Economics Vol. 49 Iss. 2 (2014)
Available at: http://works.bepress.com/ting-zhang/2/