The European Financial Crisis was a crippling event in modern economic history. In the aftermath of the crisis, national as well as international, public as well as private institutions are researching the origin of the crisis and ways to prevent a second occurrence. Research and literature show that a determining factor for the crash of the financial markets were construction and housing prices. As a result of this observation a possible explanation for the European Financial Crisis could be found in boom and bust cycles of these industries.
The following paper will briefly introduce the background of the boom and bust cycles based upon the New Keynesian perspective of Endemic Business Cycle as well as the socio-economic background of the crisis. In a next step supporting and opposing arguments of the introduced model are presented, and analyzed.
The paper will conclude that while the boom and bust cycles are not as co-depended as the model indicates, the European Financial Crisis was indeed strongly influenced by the boom and subsequent bust of Construction and Housing prices. The correlation with credit booms played a decisive role in the crash. Thus, authorities are would be well advised to address the correlation in monetary policy.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Background
- Socio-economic Background
- The Boom and Bust Cycle
- Supporting Arguments
- 1970-2001 – Findings of the 2003 Helbling Study
- 2000-2007 - Findings of the 2013 study of the IMF
- Opposing Arguments
- Autocorrelation disproved?
- Correlation of housing prices and inflation rates
- Impact of Monetary Policy
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to explore the role of boom and bust cycles in the construction and housing industries as a potential explanation for the European Financial Crisis. The paper will examine the background of these cycles from a New Keynesian perspective and analyze both supporting and opposing arguments for this theory.
- The impact of boom and bust cycles in construction and housing on the European Financial Crisis
- The relationship between credit booms and the crash of the financial markets
- The role of monetary policy in addressing the correlation between construction and housing prices and the financial crisis
- The socio-economic context of the crisis, including globalization, the world market, and neoliberalism
- The New Keynesian perspective on the endemic business cycle
Zusammenfassung der Kapitel (Chapter Summaries)
The introduction presents the European Financial Crisis as a significant event in modern economic history and highlights the role of construction and housing prices in the crash of the financial markets. The paper proposes that boom and bust cycles in these industries may offer an explanation for the crisis.
The background section explores the socio-economic context of the crisis, including globalization, the world market, and neoliberalism. It also introduces the concept of the boom and bust cycle and its relevance to the European Financial Crisis.
The supporting arguments section presents evidence from two studies, one conducted in 2003 by Helbling and another in 2013 by the IMF, which suggests a correlation between boom and bust cycles in construction and housing and the financial crisis.
The opposing arguments section explores counterarguments to the theory, including the possibility of autocorrelation disproven, the correlation of housing prices and inflation rates, and the impact of monetary policy.
Schlüsselwörter (Keywords)
The main keywords and focus topics of this paper include: European Financial Crisis, boom and bust cycles, construction and housing prices, credit booms, monetary policy, globalization, world market, neoliberalism, New Keynesian Theory, endemic business cycle.
- Quote paper
- Jan Alexander Linxweiler (Author), 2016, Booms and Busts in Construction and Housing. An explanation of the European Financial Crisis?, Munich, GRIN Verlag, https://www.grin.com/document/343908
