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Financialization, Housing Bubble, and the Great Recession: an interpretation based on a circuit of capital model

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  • Fernando Rugitsky

Abstract

This paper offers an interpretation of the Great Recession based on Foley’s circuit of capital model. It is maintained that the contractionary effects of financialization were compensated by the housing bubble, from the mid-1990s to the early 2006. The busting of the bubble, then, was followed by the crisis. The model is calibrated with reference to quarterly data from the Flow of Funds Accounts, from 1960 to 1995. The interaction of financialization and the housing bubble, from 1996 to 2006 and from 2006 to 2009, is examined by simulating a baseline version of the model and imposing the observed shocks

Suggested Citation

  • Fernando Rugitsky, 2015. "Financialization, Housing Bubble, and the Great Recession: an interpretation based on a circuit of capital model," Working Papers, Department of Economics 2015_24, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2015wpecon24
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    More about this item

    Keywords

    circuit of capital; stock-flow consistent models; financialization; housing buble; Great Recession;
    All these keywords.

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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