Review of the Article: Betting the House by Jord - Assignment Example

The information on the betting house provides useful information that can be traced back 140 years ago to ultra low-interest rates and their influence on the financial crisis. Over 14 economic data have been examined for the likelihood of financial stability risks due to low-interest rates and also the link between house price booms and mortgage credit. The financial crisis is a result of low-interest rates, house price bubbles, and mortgage booms due to post-World War II housing finance leverage democratization.

The central bank is a prerequisite in resolving this issue that has resulted due to a history of easy money that has easily destabilized finances. Unproven recent house bubbles and low-interest rates have brought about froth in house markets and resulted in financial instability. The task remains for central banks to maintain a balance between igniting other house price bubbles and a need to raise economic status from the ground. Riksbank also experienced the dilemma. Fluctuations in house prices and their effects on real outcomes of the economy, household spending, the health of financial intermediaries, and mortgage borrowing have been re-examined majorly on their sources.

Macroeconomics has recently questioned the role of housing finance and also the implication of house price and monetary policy on house price fluctuations. Data from such long history has been collected, the first covers non-financial businesses for 17 economies, disaggregated bank credit data, and real estate lending. The second data covers 14 to 17 economies unearthed long-run house prices from 1870-2012. Policy trilemma of international macroeconomics is used, to provide sources of exogenous variation in domestic monetary conditions and perturbations of domestic interest rates.

Also to estimate the impact of monetary conditions on real estate on house prices an instrument variable, IV strategy, was used (Jorda, Schularick & Taylor 5). The trilemma is used to identify perturbations of domestic interest rates that are unrelated to domestic economic conditions. Only one or two of the three trilemma policies will be selected, capital mobility, fixed exchange rates, or monetary policy. Exogenous fluctuations effects on the link between mortgage credit price on house price busts and booms are measured using strategy IV.

Trilemma when measuring exchange rates uses a base year of some countries such as the U.S that does not take into consideration other economies when formulating their foreign monetary policy choices. As a result of the long-term low-interest rates and mortgage lending, house prices have increased ed, and financial crises have emerged (Jorda, Schularick & Taylor 14)