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Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We...
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externalities induced by a collateral constraint. Limiting the loan-to-value ratio benefits only few unconstrained borrowers and … reduces ex-ante social welfare. A Pigouvianstyle symmetric debt tax (that subsidizes savings) raises collateral prices and … social welfare. Overall, collateral effects are of minor importance and interest rate rather than asset price responses are …
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In response to the financial crisis of 2008, the Federal Reserve radically increased the monetary base. Banks responded by increasing excess reserves rather than increasing bank loans, and the public responded with a substantial flight to liquidity in the form of currency and demand deposits. As...
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