at that time. A few years later, a large crash in housing prices triggered -in all likelihood- a financial and economic crisis. Inevitably, both events have contributed to the consensus among economic practitioners and many researchers that fluctuations in housing prices are a key factor in the US business cycle.

The question of the extent to which the deep transformation of mortgage markets in recent years has modified the house prices macro-relationship arose naturally. A consensus rapidly emerged in the literature that the effect of house prices on the macroeconomy has intensified since the mid-1980s, a time when important deregulations took place in the mortgage market along with the development of secondary markets and the increasing role of the Government Sponsored Enterprises (GSE) in mortgage financing.<sup>1</sup> Consequentially, a persistent fall in mortgage transaction costs occurred along with a strong relaxation of credit conditions. Homeowners were allowed to easily extract equity from their houses and loan-to-value ratios associated with mortgage loans rose, increasing the ability of landlords to borrow against their real estate.<sup>2</sup> In the literature, theoretical models showing how a relaxation of credit constraints on the mortgage sector amplifies the effect of housing prices on the macroeconomy have been developed by Miles (1992), Kiyotaki and Moore (1997), Iacoviello (2005), and Iacoviello and Neri (2010), among others. The primary mechanism of these models is that a reduction of credit constraints allows economic agents to increase the amount that they are able to borrow against their home equity, and use these additional resources to finance extra consumption and investment. Thus, because of the multiple signs of a relaxation in credit conditions in the US, we can expect that the impact of house prices in the macroeconomy has become stronger over time.

The important role of housing prices in the US business cycle in recent years does not provide sufficient evidence to conclude that the house prices effect in the macroeconomy has strengthened. Indeed, one should take into consideration the magnitude of the last boom and bust in house prices; according to the Shiller real house prices index, the boom and bust in house prices has been the largest at least since the end of the 19th century. Although time series and micro-econometric evidence largely show that housing prices have a positive impact on the US economy (see for example Green 1997, Case, Shiller, and Quigley 2005, Haurin and Rosenthal 2006, Bostic, Gabriel, and Painter 2008, and Miller, Peng, and Sklarz 2011), only a few papers provide empirical evidence on the strengthening of the effect of house prices on the macroeconomy over time. Muelbauer (2007), using a structural single equation estimation, finds that before the US credit market liberalization in the 1980s there was no significant housing wealth effect on consumption, however, since then, the effect has become positive. Altissimo et al

> 1See Gerardi, Rosen, and Willen (2010) for a brief review on the modifications of the U.S. mortgage market in the last forty years.

> 2Taking data from the Federal Home Loan Mortgage Corporation, we calculate a substantial fall in fees and points for a regular 30-year fixed-rate mortgage. We obtain an average of 2.3 for the 1980s, 1.5 for the 1990s and 0.7 for the 2000s. Greenspan and Kennedy (2008) find a sustained increase in both their gross and net equity-extraction measures (relative to disposable income) since the beginning of the 1990s.