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Housing prices and balance sheets effects: A classroom demonstration

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  • Mykhaylova, Olena
  • Mago, Shakun
  • Staveley-O’Carroll, James

Abstract

We describe a classroom demonstration in which students explore the relationship between collateral constraints and housing prices. By being actively involved in tracing the changes in consumer balance sheets, students gain a better understanding of the effects of asset prices on household wealth and the associated financial accelerator mechanism. Following the demonstration, students will be better prepared to discuss (a) how lower lending standards facilitated the housing bubble and then led to the 2007–2009 crisis; (b) the impact of irrational consumer expectations on macroeconomic activity during the inflation of the housing bubble; and (c) the role of the central bank in stabilizing asset prices and containing speculative actions of households.

Suggested Citation

  • Mykhaylova, Olena & Mago, Shakun & Staveley-O’Carroll, James, 2013. "Housing prices and balance sheets effects: A classroom demonstration," International Review of Economics Education, Elsevier, vol. 13(C), pages 50-66.
    • Handle: RePEc:eee:ireced:v:13:y:2013:i:c:p:50-66
    DOI: 10.1016/j.iree.2013.04.014
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    More about this item

    Keywords

    Housing prices; Collateral constraints; Classroom demonstration;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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