The Effects Of Housing Prices And Monetary Policy In A Currency Union
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The Effects Of Housing Prices And Monetary Policy In A Currency Union
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Author : Oriol Aspachs-Bracons
language : en
Publisher: International Monetary Fund
Release Date : 2011-01-01
The Effects Of Housing Prices And Monetary Policy In A Currency Union written by Oriol Aspachs-Bracons and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-01-01 with Business & Economics categories.
The recent boom-and-bust cycle in housing prices has refreshed the debate on the drivers of housing cycles as well as the appropriate policy response. We analyze the case of Spain, where housing prices have soared since it joined the EMU. We present evidence based on a VAR model, and we calibrate a New Keynesian model of a currency area with durable goods to explain it. We find that labor market rigidities provide stronger amplification effects to all type of shocks than financial frictions do. Finally, we show that when the central bank reacts to house prices, the non-durable sector suffers an important contraction. As a result, the boom-and-bust cycle would not have been avoided if Spain had remained outside the EMU during the 1996-2007 period.
The Effects Of Housing Prices And Monetary Policy In A Currency Union
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Author :
language : en
Publisher: "la Caixa"
Release Date :
The Effects Of Housing Prices And Monetary Policy In A Currency Union written by and has been published by "la Caixa" this book supported file pdf, txt, epub, kindle and other format this book has been release on with categories.
The Effects Of Housing Prices And Monetary Policy In A Currency Union
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Author : Oriol Aspachs
language : en
Publisher:
Release Date : 2009
The Effects Of Housing Prices And Monetary Policy In A Currency Union written by Oriol Aspachs and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
Many developed countries have seen housing prices and residential investment soar in the last decade. This fact has refreshed the debate on the drivers of housing cycles as well as the appropriate policy response. We analyze these issues for the case of Spain, who has seen the interest rates at historical lows since it joined the EMU, and increasing housing demand pressures from immigration and the baby boom generation. First, we present evidence based on a VAR model that suggests that both monetary and demand shocks are behind Spain's housing boom. Second, we calibrate a New Keynesian dynamic general equilibrium model of a small open economy in a currency area with durable goods. We study the effects of a housing demand shock, a monetary policy shock and a risk premium shock in the model. This allows us to better understand the factors amplifying a housing boom, the role played by the ECB and the recessionary effects of a housing bust. Our results are as follows. First, the model confirms that a combination of these shocks is indeed behind Spain's housing boom. Second, labor market rigidities provide strong amplification effects to all type of shocks, while financial frictions play a secondary role. Third, monetary policy autonomy is of first order importance to cushion risk premium shocks, while this is not the case for housing demand shocks.
Essays On Housing And Monetary Policy
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Author : Min-Ho Nam
language : en
Publisher:
Release Date : 2013
Essays On Housing And Monetary Policy written by Min-Ho Nam and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Housing categories.
This thesis, motivated by my reflections about the failings of monetary policy implementation as a cause of the sub-prime crisis, attempts to answer the following inquiries: (i) whether interest rates have played a major role in generating the house price fluctuations in the U.S., (ii) what are the effects of accommodative monetary policy on the economy given banks' excessive risk-taking, and (iii) whether an optimal monetary policy rule can be found for curbing credit-driven economic volatilities in the model economy with unconventional transmission channels operating. By using a decomposition technique and regression analysis, it can be shown that short-term interest rates exert the most potent influence on the evolution of the volatile components of housing prices. One possible explanation for this is that low policy rates for a prolonged period tend to encourage bankers to take on more risk in lending. This transmission channel, labelled as the risk-taking channel, accounts for the gap to some extent between the forecast and the actual impact of monetary policy on the housing market and the overall economy. A looser monetary policy stance can also shift the preference of economic agents toward housing as theoretically and empirically corroborated in the context of choice between durable and nondurable goods. This transmission route is termed the preference channel. If these two channels are operative in the economy, policy makers need to react aggressively to rapid credit growth in order to stabilize the paths of housing prices and output. These findings provide meaningful implications for monetary policy implementation. First of all, central bankers should strive to identify in a timely fashion newly emerging and state-dependent transmission channels of monetary policy, and accurately assess the impact of policy decisions transmitted through these channels. Secondly, the intervention of central banks in the credit or housing market by adjusting policy rates can be optimal, relative to inaction, in circumstances where banks' risk-taking and the preference for housing are overly exuberant.
Housing And The Monetary Transmission Mechanism
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Author : Frederic S. Mishkin
language : en
Publisher:
Release Date : 2007
Housing And The Monetary Transmission Mechanism written by Frederic S. Mishkin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Housing categories.
The housing market is of central concern to monetary policy makers. To achieve the dual goals of price stability and maximum sustainable employment, monetary policy makers must understand the role that housing plays in the monetary transmission mechanism if they are to set policy instruments appropriately. In this paper, I examine what we know about the role of housing in the monetary transmission mechanism and then explore the implications of this knowledge for the conduct of monetary policy. I begin with a theoretical and empirical review of the main housing-related channels of the transmission mechanism. These channels include the ways interest rates directly influence the user cost of housing capital, expectations of future house-price movements, and housing supply; and indirectly influence the real economy through standard wealth effects from house prices, balance sheet, credit-channel effects on consumer spending, and balance sheet, credit-channel effects on housing demand. I then consider the interaction of financial stability with the monetary transmission mechanism, and discuss the ways in which the housing sector might be a source of financial instability, and whether such instability could affect the ability of a central bank to stabilize the overall macroeconomy. I conclude with a discussion of two key policy issues. First, how can monetary policy makers deal with the uncertainty with regard to housing-related monetary transmission mechanisms? And second, how can monetary policy best respond to fluctuations in asset prices, especially house prices, and to possible asset-price bubbles?
Banking Union As A Shock Absorber
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Author : Daniel Gros
language : en
Publisher: Rowman & Littlefield
Release Date : 2015-12-16
Banking Union As A Shock Absorber written by Daniel Gros and has been published by Rowman & Littlefield this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-12-16 with Business & Economics categories.
The Great Financial Crisis, which started in 2007-08, was originally called the ‘sub-prime’ crisis because its origins could be traced to excessive lending in the real estate sector in the US, concentrated mostly in sunbelt states like Nevada, Florida and California. There were similar pockets of excess lending for housing in Europe, notably in Ireland and Spain. But a key difference emerged later: in Ireland and Spain, the local banking systems almost collapsed and the governments experienced severe financial stress with large macroeconomic costs. Nothing similar happened in the US. The local financial system remained fully functional and the local governments did not experience increased financial stress in the states with the biggest real estate booms, like Nevada or Florida. This book illustrates how the structure of the US banking market and the existence of federal institutions allowed regional financial shocks to be absorbed at the federal level in the US, thus avoiding local financial crisis. The authors argue that the experience of the US shows the importance of a ‘banking union’ to avoid severe regional (national) financial dislocation in the wake of regional boom and bust cycles. They also discuss the extent to which the institutions of the partial banking union, now in the process of being created for the euro area, should be able to increase its capacity to deal with future regional boom and bust cycles, thereby stabilising the single currency.
Monetary And Macroprudential Policy In An Estimated Dsge Model Of The Euro Area
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Author : Mr.Dominic Quint
language : en
Publisher: International Monetary Fund
Release Date : 2013-10-14
Monetary And Macroprudential Policy In An Estimated Dsge Model Of The Euro Area written by Mr.Dominic Quint and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-10-14 with Business & Economics categories.
In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.
Financial Factors
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Author : Mr.Pau Rabanal
language : en
Publisher: International Monetary Fund
Release Date : 2015-07-14
Financial Factors written by Mr.Pau Rabanal and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-07-14 with Business & Economics categories.
We suggest a new approach for analyzing the role of financial variables and shocks in computing the output gap. We estimate a two-region DSGE model for the euro area, with financial frictions at the household level, between 2000-2013. After joining the monetary union, a decline in some countries’ borrowing costs contributed to a credit, housing and real boom and bust cycle. We show that financial frictions amplified economic fluctuations and the measure of the output gap in those countries. On the contrary, in countries such as France and Germany, financial frictions played a minor role in output gap measures. We also present evidence of the trade-offs faced by the European Central Bank when trying to stabilize two regions in a currency union with unsynchronized economic cycles.
The Housing Supply Channel Of Monetary Policy
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Author : Bruno Albuquerque
language : en
Publisher: International Monetary Fund
Release Date : 2024-02-02
The Housing Supply Channel Of Monetary Policy written by Bruno Albuquerque and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2024-02-02 with Business & Economics categories.
We study the role of regional housing markets in the transmission of US monetary policy. Using a FAVAR model over 1999q1–2019q4, we find sizeable heterogeneity in the responses of US states to a contractionary monetary policy shock. Part of this regional variation is due to differences in housing supply elasticities, household debt overhang, and housing wealth (volatility). Our analysis indicates that house prices and consumption respond more in supply-inelastic states and in states with large household debt imbalances, where negative housing wealth effects bite more strongly and borrowing constraints become more binding. Moreover, financial stability risks increase sharply in these areas as mortgage delinquencies and foreclosures surge, worsening banks’ balance sheets. Finally, monetary policy may have a stronger effect on housing tenure decisions in supply-inelastic states, where the homeownership rate and price-to-rent ratios decline by more. Our findings stress the importance of regional housing supply conditions in assessing the macrofinancial effects of rising interest rates.
Global House Price Fluctuations
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Author : Mr.Hideaki Hirata
language : en
Publisher: International Monetary Fund
Release Date : 2013-02-06
Global House Price Fluctuations written by Mr.Hideaki Hirata and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-02-06 with Business & Economics categories.
We examine the properties of house price fluctuations across 18 advanced economies over the past 40 years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices.