Monetary policy and long-term trends

Charles A.E. Goodhart, Philipp Erfurth 03 November 2014

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Introduction

There has been a long-term downward trend in the share and strength of labour in national income, which is depressing both demand and inflation. This has prompted ever more expansionary monetary policies. While understandable, indeed appropriate, within a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance (leverage).

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  monetary policy, Inequality, debt, leverage, wages, labour share, globalisation, consumption, propensity to consume, fiscal policy, Ageing, interest rates, investment, asset prices, housing, house prices, exchange rates, global crisis, mortgages, sub-prime crisis, Macroprudential policy, structural reforms, balance sheets, deleveraging, equity, shared-equity mortgages, Help to Buy

Home prices since 1870: No price like home

Katharina Knoll, Moritz Schularick, Thomas Steger 01 November 2014

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For economists there is no price like home – at least not since the global financial crisis. Fluctuations in house prices, their impact on the balance sheets of consumers and banks, as well as the deleveraging pressures triggered by house price busts have been a major focus of macroeconomic research in recent years (Mian and Sufi 2014, Jordà et al. 2014, Shiller 2009).

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Topics:  Economic history Financial markets

Tags:  housing, house prices, global crisis, land prices, transport costs, transport revolution, land-use restrictions, zoning laws, Inequality

Capital is not back: A comment on Thomas Piketty’s ‘Capital in the 21st Century’

Odran Bonnet, Pierre-Henri Bono, Guillaume Camille Chapelle, Étienne Wasmer 30 June 2014

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The impressive success of Thomas Piketty’s book (Piketty 2014) shows that inequality is a great concern in most countries. His claim that “capital is back”, because the ratio of capital over income is returning to the levels of the end of the 19th century, is probably one of the most striking conclusions of his 700 pages. Acknowledging the considerable interest of this book and the effort it represents, we nevertheless think this conclusion is wrong, due to the particular way capital is measured in national accounts.

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Topics:  Global economy

Tags:  house prices, housing, Inequality, rents, housing bubble, capital, wealth inequality

The housing-market impacts of shale-gas development

Lucija Muehlenbachs, Beia Spiller, Christopher Timmins 09 February 2014

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Technological improvements in the extraction of natural gas from shale rock have transformed the industry.

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Topics:  Energy Environment

Tags:  house prices, housing, externalities, pollution, property prices, shale gas, fracking

Does homeownership influence stockholding?

Denis Fougère, Mathilde Poulhès 01 December 2012

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The influence of homeownership on portfolio choice is a complex issue because housing is both an investment good and a consumption good. That said, a deeper analysis of the influence of homeownership is crucial, at least if we consider the recent high fluctuations in the housing market and the substantial increase in mortgage debt both in the US and some European countries.

Distinguishing between mortgage debt effect and home equity effect

The debate on the influence of homeownership on households’ portfolios is, first, a debate between theory and empirics.

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Topics:  Global economy

Tags:  house prices, mortgages, home equity

Why is housing such a popular investment? A new psychological explanation

Thomas Alexander Stephens, Jean-Robert Tyran 23 November 2012

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In the wake of the economic crisis that began in 2007, homeowners in many countries have faced substantial losses. Prices have fallen in both nominal and real terms. In the US, for example, house prices in the first quarter of 2012 were down more than 40% in real terms from their peak (Shiller 2012). Nevertheless, housing remains a popular investment1.

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Topics:  Global economy

Tags:  inflation, house prices, housing

On the Chinese house-price bubble

Christian Dreger, Yanqun Zhang 15 July 2011

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For many observers, the Chinese economy has been spurred by a bubble in the real-estate market, probably driven by the fiscal stimulus package and massive credit expansion (Nicolas 2009). For example, the stock of loans increased by more than 50% since the end of 2008.

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Topics:  Macroeconomic policy

Tags:  house prices, China, Property market

Low interest rates and housing booms: The role of capital inflows, monetary policy, and financial innovation

Filipa Sá, Pascal Towbin, Tomasz Wieladek 10 March 2011

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The run-up to the recent global financial crisis was characterised by an environment of low interest rates and a rapid increase in housing market activity across OECD countries.

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Topics:  International finance Macroeconomic policy Monetary policy

Tags:  interest rates, house prices, Capital inflows, real estate

Foreclosures, house prices, and the real economy

Atif Mian, Francesco Trebbi, Amir Sufi 10 February 2011

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How does a negative shock to the economy get amplified into a severe and long-lasting economic slump? The answer may be found in your house. An extensive body of theoretical research shows that the forced sale of durable goods – in many cases a house – can have two undesirable consequences. First, the price of these goods is driven down. Second, these negative price effects can lead to a significant decline in real economic activity (see for example Shleifer and Vishny 1992, Kiyotaki and Moore 1997, Krishnamurthy 2009, Lorenzoni 2008, and Shleifer and Vishny 2010 for a recent discussion).

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Topics:  Global crisis Macroeconomic policy

Tags:  US, house prices, subprime crisis, global crisis, foreclosures

Household debt and macroeconomic fluctuations

Amir Sufi, Atif Mian 29 April 2010

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There once was a decade in US history in which financial innovation led to a sharp rise in the flow of credit to households. Durable goods consumption increased dramatically as household debt climbed to over 100% of GDP. The subsequent economic downturn was tragic, and the severity of the malaise was closely related to the preceding rise in household leverage (see Eichengreen and Michener 2003, Mishkin 1978, and the chart from David Beim at npr.org).

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Topics:  Global crisis

Tags:  house prices, Subprime, global crisis

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