Magazine article Regional Economist

Insights from the St. Louis Fed's Blogs

Magazine article Regional Economist

Insights from the St. Louis Fed's Blogs

Article excerpt

On the Economy blog (

What Real interest Rates Tell about the Recession to Follow

A negative correlation between real interest rates before a recession and the severity of the recession seems to exist.

"These empirical results are provocative and suggest there may be a causal relationship between levels of real interest rates and economic output. Our preferred view is that low levels of real interest rates capture early warnings of future slowdown in economic growth. Furthermore, this view suggests that the lower the level of the real rate, the higher the likelihood that the economy will enter a recession. According to this view, future slow growth causes a decline in long-term real interest rates, and not the other way around."

"Debtless" Housing Boom Leads Household Wealth Recovery

Did surging house prices fuel rising mortgages, or vice versa? Recent data don't support either.

"A commonly held view of the housing bubble is that excessive mortgage growth fueled the price surge. However, other economists believe the opposite: The bubble sentiment created the rising home values (used as collateral) necessary to support rapidly rising mortgage borrowing.

"Annual data from the recession (and aftermath) period 2006-18 support neither view. In fact, since 2006, there has been essentially no relationship between the growth rate of mortgage borrowing and the change in value of the housing stock. …

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