Real estate and the great crisis: Lessons for macro-prudential policy
Credit conditions have caused real estate booms and busts, owing to an under-pricing of credit risk aided by regulatory arbitrage and shadow financing. Across countries, real estate price and credit bubbles have reflected not only inelastic land supply and thin trading, but also the amplification of shocks via backward-looking price expectations and financing based on distorted prices. Macro-prudential lessons from the Great Crisis include preventing excess real estate financing and limiting the amplification and correlation of risks. Nonetheless, the costs and benefits of recent regulations require re-evaluation amid an on-going need to address correlated risks from shadow financing and securitization.
John Duca is Vice President and Associate Director of Research at the Federal Reserve Bank of Dallas leads and conducts research in macroeconomics and finance for the Dallas Federal Reserve Bank. He has been with the Bank since 1991. He has given numerous briefings on the economy to the Bank’s president and board of directors. Duca has published more than 75 articles on money, credit, wages and housing in scholarly journals and Bank publications. Much of this research analyzes how innovations have altered economic relationships relevant to the macroeconomy and monetary policy. From 1986 to 1991, Duca was a staff economist at the Federal Reserve Board, where he briefed former chairman Alan Greenspan and Paul Volcker and other Fed policymakers. Additionally, he was a part-time lecturer at the University of Maryland. He is currently a part-time lecturer at Southern Methodist University. He is also a vice president of the International Banking, Economics, and Finance Association. He holds a BA from Yale University and a PhD in economics from Princeton University.