Macroeconomics and Financial Markets

April 2015
Veronica Guerrieri, Harald Uhlig
The purpose of this chapter is to explore the connection between financial markets and the housing market and its effects on the macroeconomic activity. There is a large and growing literature that separately explores credit cycles and house price bubbles. In this chapter we will try to connect these two streams of literature and understand the potential feedbacks between the two. In particular, we will explore two different broad approaches to think about this connection: 1. the house price boom-bust generates the credit boom-bust; 2. the credit boom-bust generates the house price boom-bust.