Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26016
Authors: 
Illing, Gerhard
Year of Publication: 
2007
Series/Report no.: 
CESifo working paper 1971
Abstract: 
The paper presents a stylised framework to analyse conditions under which monetary policy contributes to amplified movements in the housing market. Extending work by Hyun Shin (2005), the paper analyses self enforcing feedback mechanisms resulting in amplifier effects in a credit constrained economy. The paper characterizes conditions for asymmetric effects, causing systemic crises. By injecting liquidity, monetary policy can prevent a meltdown. Anticipating such a response, private agents are encouraged to take higher risks. Provision of liquidity works as a public good, but it may create potential conflicts with other policy objectives and may give incentives to build up leverage with a high systemic exposure to small probability events.
JEL: 
E44
G18
Document Type: 
Working Paper

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