Christophe André

Housing Markets, Wealth and the Business Cycle

The paper examines the linkages between housing markets and the business cycle in OECD countries, focusing on how differences in the degree of resilience to economic shocks can be affected by the structural characteristics of housing and mortgage markets. The paper focuses specifically on: the transmission channel from housing wealth to consumption and on the factors behind house price variability, which help to determine whether the housing sector plays a stabilising role or not. Estimates of the marginal propensity to consume out of housing wealth are presented for ten OECD countries, where it is found that the strongest impact on consumption is in countries that have large, efficient and responsive mortgage markets. Particularly important in this regard is the degree of mortgage market “completeness” -- i.e. the extent to which the market is able to offer a variety of products and to serve a broad range of potential borrowers -- in particular, the extent to which they provide ... Cette etude examine les liens entre les marches immobiliers et le cycle economique dans les pays de l’OCDE, se concentrant sur le role des specificites nationales des marches immobiliers et hypothecaires sur l’inegale resilience face aux chocs economiques. Cette etude s’interesse particulierement au canal de transmission de la richesse immobiliere a la consommation et aux facteurs expliquant la variabilite des prix des logements ; ces deux aspects contribuent a determiner si le secteur immobilier joue un role stabilisateur ou non. Des estimations de la propension marginale a consommer la richesse immobiliere sont presentees pour dix pays de l’OCDE. Ces estimations indiquent que les effets les plus important sur la consummation apparaissent dans les pays ayant des marches hypothecaires de grande taille, efficients et reactifs. Le niveau de « completude » du marche hypothecaire -- la mesure dans laquelle le marche peut offrir une variete de produits et repondre a un large eventail ...

Standard Shocks in the OECD Interlink Model

One of the OECD Economic Department’s key vehicles for analysing effects and international spillovers of macroeconomic policy as well as assessing risks to the global outlook is the macroeconometric model, INTERLINK. In the context of the Department’s regular projection exercises the model performs a variety of functions. These include 1) contributing to the construction and co-ordination of individual country projections; 2) the production of globally consistent trade projections; and 3) simulations to explore the short- to medium-term consequences of alternative economic conditions and policy assumptions. This paper briefly describes the main features of the current version of INTERLINK and presents the results of a number of standard macroeconomic shocks. These simulation results reflect the combination of unadjusted model properties and the specific stylised policy assumptions made. In the course of more routine policy analysis with the model at the OECD, these are augmented by ... Le modele macro-econometrique INTERLINK est l’un des principaux outils du Departement des affaires economiques de l’OCDE pour analyser les effets directs et les repercussions internationales des politiques economiques et pour evaluer les risques pesant sur les perspectives globales. Dans le cadre des exercices reguliers de prevision, le modele remplit diverses fonctions parmi lesquelles : 1) contribuer a la construction et a la coordination des previsions de chaque pays; 2) produire des previsions du commerce international globalement coherentes; et 3) realiser des simulations pour explorer les consequences a court et a moyen terme de differentes hypotheses sur l’environnement economique et les politiques economiques. Ce document de travail decrit brievement les principales caracteristiques de la version actuelle d’INTERLINK et presente les resultats de chocs macro-economiques standards. Ces resultats de simulations refletent a la fois les proprietes intrinseques du modele et des ...

Oil Price Developments: Drivers, Economic Consequences and Policy Responses

This paper analyses the factors influencing the price of oil and its likely evolution over the next quarter century. It begins by investigating the fundamental forces shaping long-term oil price developments, highlighting the importance of growth-led demand for oil, particularly that emanating from fast-growing, energy-intensive developing countries, and the implications of increasingly geographically concentrated oil reserves. The paper presents oil price projections to 2030 and examines the sensitivity of the projections to the assumptions about growth and non-OPEC supply. While certain combinations of factors could lead to a significantly higher oil price, the projections also suggest that the optimal strategy of resource-rich oil producers would be to prevent it rising too far. The paper then documents short-term influences on the oil price, which peaked at

Recent House Price Developments

50 a barrel in 2004, and notes that they have probably led to a significant departure from the long-run equilibrium price ... Ce document analyse les facteurs qui influencent le prix du petrole et son evolution probable au cours du prochain quart de siecle. Il examine d’abord les determinants fondamentaux de l’evolution des prix du petrole a long terme, en soulignant l’importance de la demande petroliere alimentee par la croissance, en particulier celle emanant des pays en developpement a forte intensite d’energie et en expansion rapide, ainsi que les consequences de la concentration geographique croissante des reserves petrolieres. Le document presente des previsions des prix du petrole jusqu’a l’horizon 2030 et evalue leur sensibilite aux hypotheses concernant la croissance et l’offre hors OPEP. Tandis que certaines combinaisons de facteurs pourraient se traduire par un prix du petrole nettement plus eleve, les previsions montrent aussi que pour les producteurs petroliers dotes d’abondantes reserves la strategie optimale consisterait a empecher une hausse excessive des cours. L’etude decrit ensuite les ...

Revenue Buoyancy and its Fiscal Policy Implications

In the vast majority of OECD economies, house prices in real terms have been moving up strongly since the mid-1990s. Because of the important role housing wealth has been playing during the current upswing, this paper will look more closely at what is underlying these developments for 18 OECD countries over the period from 1970 to the present, with a view to shedding some light on whether or not prices are in line with fundamentals. The paper begins by putting the most recent housing price run-ups in the context of the experiences of the past 35 years. It then examines current valuations against a range of benchmarks. It concludes with a review of the links between a possible correction of housing prices and real activity. The main highlights from this analysis are as follows: 1) The size and duration of the current real house price increases; the degree to which they have tended to move together across countries; and the extent to which they have disconnected from the business cycle are unprecedented. 2) Overvaluation of real house prices may only apply to a relatively small number of countries. However, the extent to which these prices look to be fairly valued depends largely on longer-term interest rates remaining at or close to their current low levels. 3) If house prices were to adjust downward, the historical record suggests that the drops might be large and that the process could be protracted, given the observed stickiness of nominal house prices and the current low rates of inflation.

Testing for persistence in housing price-to-income and price-to-rent ratios in 16 OECD countries

Tax receipts surged between 2005 and 2007 in many OECD countries, resulting in significant improvements in headline fiscal positions. As a consequence, pressures for tax cuts and for public spending increases have emerged. In the past, responding to such demands has permanently weakened budget positions as revenue windfalls ultimately proved to be temporary. Hence, the opportunity to address structural deficit problems and prepare for future demographic trends has been lost, and the ability to respond to subsequent cyclical downturns has been weakened. This paper provides an analysis of the factors behind recent revenue buoyancy and examines past responses to unexpected revenue gains. It also discusses whether improved information on fiscal positions and future fiscal challenges, combined with relevant fiscal rules, might help in avoiding a repetition of past errors in fiscal policy.

Comovement in Euro area housing prices: A fractional cointegration approach

Housing price-to-income and price-to-rent ratios are among the most widely monitored indicators of housing market conditions. While these ratios tend to fluctuate around a constant level or a mild trend over the long term, they also tend to deviate from these benchmarks for protracted periods. Traditional unit root tests often indicate the presence of a unit root. This article uses the framework of fractional integration to test the persistence of price-to-income and price-to-rent ratios in a sample of 16 OECD countries spanning four decades. The results indicate that the ratios are highly persistent. The possibility that persistence estimates may be affected by structural breaks in the series is also considered, but evidence of such breaks is found only in a very limited number of cases. Policy action may be required if high price-to-income and price-to-rent ratios have adverse social and economic consequences. Policies should be guided by a careful analysis of the factors behind high ratios.

Dynamic co-movements between economic policy uncertainty and housing market returns

This paper analyses comovement in housing prices across the Euro area. We use techniques based on the concepts of fractional integration and cointegration. Our results indicate that all the individual log-real price indices display orders of integration which are above one, implying long memory in their corresponding growth rates. Further, looking at the cointegration relationships, we observe that the series for the Euro area is cointegrated with those of Belgium, Germany and France. Focusing on the individual countries, we find cointegration relationships between Belgium and Spain, Belgium and the Netherlands, Germany and Spain, Germany and Ireland, France and Spain, and Ireland and the Netherlands. Other bilateral cointegration relationships can either clearly be rejected or the results are ambiguous. Finally, prices in Germany seem to move in the opposite direction from other countries, which may be related to capital flows associated with current account imbalances.

Housing Markets, Business Cycles and Economic Policies

We examine dynamic correlations between housing market returns and economic policy uncertainty in the United States. Our findings suggest that correlations are time-varying and sensitive to economic fundamentals and US recessions.

Oil Price Developments

From the mid-1990s to 2007, the vast majority of OECD countries experi-enced an exceptional expansion of their housing markets, both in terms of magnitude and duration. Deviating from historical patterns, the latest housing upswing has been disconnected from the business cycle, as the economic downturn of the early years of the century was not accompa-nied by a slowdown of housing markets. At the same time, household debt has reached record levels in many countries, largely as a result of low interest rates and a wide range of financial innovations on mortgage markets. Housing has contributed to the expansion of economic active-ity by enhancing the effect of interest rate cuts on economic growth: residential investment has been strong and wealth effects have supported private consumption, in particular in countries where mortgage markets were well developed. Econometric investigations point to a transmis-sion of housing wealth to private consumption through the refinancing of mortgages and home equity loans — more generally housing equity withdrawal. Financial innovations have contributed to excessive lend-ing and housing booms, which are at the root of the current financial turmoil. Tax systems favoring home ownership through tax deductibility or subsidies have sometimes exacerbated the problem.