Economic Policy Review Executive Summary
Exogenous Shocks and the Dynamics of City Growth:
Evidence from New York
Recapping an article from the December 2005 issue
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of the Economic Policy Review, Volume 11, Number 2
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13 pages / 396 kb

Authors: Andrew F. Haughwout and Bess Rabin

Index of executive summaries
  • To explain the dynamics of city growth and the operation of urban economies, researchers often point to the way in which cities react to shocks.

  • Haughwout and Rabin adopt this approach in examining New York City's response to a large and unanticipated external shock: the terrorist attacks of September 11, 2001. They use pre- and post-9/11 data on the city's real estate markets to determine the economic effect of the attacks.

  • The authors acknowledge that the shock destroyed a sizable amount of Downtown Manhattan's premium office stock. However, the overall impact on real estate markets in the city as a whole was modest, as evidenced by several post-9/11 patterns:
    • Long-run demand for locations in the city relative to the rest of the nation was hardly affected. In fact, evidence from aggregate real estate prices suggests that relative demand continued to strengthen.

    • Although short-run demand for residential space Downtown was weak, long-run demand increased significantly.

    • Both long- and short-run demand for office space Downtown weakened compared with the rest of the United States, but demand for office space in Midtown Manhattan rose sharply.
  • According to Haughwout and Rabin, these patterns were part of a larger trend that had been under way before 9/11—a trend that was only accelerated by the shock. Downtown was becoming more of a mixed-use community, as businesses—and, in particular, financial services firms—were gravitating toward Midtown, to be replaced by residences and shops. Midtown, in turn, was becoming a more prominent business location.

  • The transformations of Downtown and Midtown were central to the city's recovery from the shock, explain the authors.

  • Haughwout and Rabin also emphasize the key coordination role played by local government in the aftermath of the attacks. New York City officials provided clear information—in the form of public announcements, regulation, and planning—that reinforced existing market trends. Their efforts encouraged private commercial activity to reestablish itself in Midtown and residential activity to shift to Downtown, offsetting many of the negative effects of the dislocations.

About the Authors

Andrew F. Haughwout is a research officer at the Federal Reserve Bank of New York; Bess Rabin, formerly a research associate at the Bank, is an analyst at Watson Wyatt Worldwide.


The views expressed in this summary are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.

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