Thomas Hintermaier, Winfried Koeniger, 09 January 2016

Crises of confidence turn booms into busts. Bloated household balance sheets and high debt offer the right ingredients for a confidence-driven housing bust. This column develops an analytic framework that accommodates the potential role of confidence fluctuations as a source of uncertainty in the economy. Current debt levels are shown to determine the exposure to crises of confidence. The results point to a clear role for macroprudential policy in the prevention of such crises. 

Fergal McCann, Tara McIndoe-Calder, 23 September 2014

The role of credit-fuelled property booms in the Global Crisis has received much high-profile attention in recent years. Using data on Irish small and medium enterprises, this column highlights an additional channel through which such booms can impact post-crisis growth. Firms having difficulty repaying their property-related debts divert resources away from hiring and investment. Property booms thereby induce misallocation of resources in both the boom and the bust.

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

Thomas Piketty’s claim that the ratio of capital to national income is approaching 19th-century levels has fuelled the debate over inequality. This column argues that Piketty’s claim rests on the recent increase in the price of housing. Other forms of capital are, relative to income, at much lower levels than they were a century ago. Moreover, it is rents – not house prices – that should matter for the dynamics of wealth inequality, and rents have been stable as a proportion of national income in many countries.

Charles Goodhart, Melanie Baker, 14 October 2013

Help-to-Buy was set up to stimulate the economy and help working people buy a home. Critics worry that it has no supply effect and thus just pushes up house prices. This column argues that the policy will boost supply and that it could also become a useful macroprudential tool. The Financial Policy Committee, in conjunction with others, could adjust parameters to manage volatility and avoid bubbles.

Uri Dadush, Zaahira Wyne, Shimelse Ali, 24 July 2012

The US and the Eurozone are slowly recovering after the bursting of their huge housing bubbles. Yet the hardest-hit states in the US have adjusted more rapidly than the most troubled European economies. This column examines differences between the US and Eurozone monetary unions that can help explain why.

Cinzia Alcidi, Daniel Gros, 15 April 2012

Spain faces high unemployment and slow growth. This column focuses on an important sources of those problems – its housing market. While some adjustment has occurred since Spain's housing bubble burst in 2008, house prices and construction need to decrease more to slow Spain's unsustainable accumulation of foreign debt.

Christian Hott, Terhi Jokipii, 29 March 2012

Visit Ireland and Spain and you will find row upon row of empty houses – the remnants of a housing boom turned bust. Were low interest rates to blame? This column looks at the effect of a deviation in interest rates from the Taylor rule and finds that keeping interest rates ‘too low’ can explain up to 50% of the overvaluation of the property market in these countries and elsewhere.

Sean Chu, Patrick Bajari, Minjung Park, 02 February 2009

This column presents empirical evidence identifying the factors triggering mortgage defaults in the US. Both deterioration of borrowers’ net equity and liquidity constraints have been important. Policy remedies will have to address both concerns – the authors recommend write-downs on loan principal amounts as one such measure.

Keiichiro Kobayashi, 27 October 2008

Japan’s banking crisis of the late 1990s and early 2000s offer critical lessons on how to deal with the current financial crisis. This column warns against relying on fiscal stimulus, stresses the importance of recapitalising viable bank but letting the ‘zombie banks’ go bust to boost certainty about financial firms’ solvency. In order to avoid a vicious cycle of steady economic decline as in Japan, the G8 and emerging economies should create a "Financial System Stabilisation Fund".

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