Krzysztof Olszewski

Foreign Direct Investment and Foreign Portfolio Investment in the Contemporary Globalized World: Should They Be Still Treated Separately?

Foreign direct investment (FDI) and foreign portfolio investment (FPI) have been long considered as distinct and independent forms of international capital flows, but in the globalized world there are reasons to treat them as interconnected phenomena. This paper analyzes the mutual relationship between FDI and FPI and attempts to answer the question whether they complement or substitute for each other from a foreign investor’s point of view. Firstly, the paper describes the main characteristics of FDI and FPI in terms of a trade-off between their volatility and profitability. Secondly, it provides a literature review on the determinants of these two types of foreign investment. Finally, we analyse the long-run and short-run relationships between FDI and FPI running VECM regressions on data for Poland. Our research suggests that these two forms of foreign investment are substitutes. To be more specific, in economically stable periods FDI tends to dominate over FPI, but during insecurity and economic distress, both in source and host countries, FPI starts to gain importance.

To Rent or to Buy - Analysis of Housing Tenure Choice Determined by Housing Policy

The article discusses the relatively large share of owner-occupied housing in the housing stock in selected European countries with relatively low per capita income and describes the underlying causes of this phenomenon. We identify the economic implications of the growing number of owner-occupied housing and poorly developed rental market. The paper analyses home purchase or rental decisions and explains the correlations between housing availability, consumption and households’ savings, as well as housing policy. The way in which the development of the rental market can affect the situation in the property market is presented on the basis of a simple model.

Modelling of cycles in the residential real estate market – interactions between the primary and the secondary market and multiplier effects

While analysing the housing market, we focus on the short-term modelling of the housing units market instead of analysing the long-term housing space market. In this context, even a minor change in factors affecting the real estate market leads, due to the multiplier effect, to strong shocks on the demand side, and, consequently, to an excessive reaction of the supply side. These shocks, depending on the price elasticity of supply and demand, may disappear or explode. This articles presents the modelling of cycles in the residential real estate market. We focus on price changes and the number of housing units in the primary and secondary market. We find that in order to smooth the housing cycle, the housing demand needs to be smoothed. This can be achieved with the use of fiscal policy, prudential regulations and housing policy.

Spatial and Hedonic Analysis of House Price Dynamics in Warsaw

The aim of our article is to analyze the dynamics of housing prices in the secondary housing market in Warsaw from Q1 2006 to Q3 2013, taking into account the spatial relationship between prices. In the first part of this research we compare the geographically weighted regression with a linear regression estimated using OLS with spatial variables. In the second part, we combine the geographically weighted regression with the penalized spline regression to extract the effect of time on prices. With this method we obtain a nonlinear and more precise measure of time effects and improved goodness-of-fit statistics. We obtain a hedonic index, that is more robust against short-term changes in house prices than the usual, linear hedonic index. This is a novel approach, which has not been applied before in the case of the Polish housing market. The index allows us to show how interest rates or the housing policy influenced house prices.

The impact of commercial real estate on the financial sector, its tracking by central banks and some recommendations for the macro-financial stability policy of central banks

This article reviews the impact of commercial real estate (CRE hereafter) on macro-financial stability and gives some ideas, how central banks could deal with the risk. First, we present the main features of the CRE market, explain its cycle and outline risks related to this market. Its relation to the financial sector is discussed. Further on, basing on the experience of some countries with CRE crises, we critically assess the reactions of their central banks. The characteristics of the CRE market are presented on the case of Poland, because it is a fast growing market. Its analysis should simplify the understanding why the CRE market should be tracked by the central bank. Finally, we present some ideas for the data collection and analysis of the CRE market. Further on, we provide some hints for the macroeconomic and financial stability policy of central banks, which should help to reduce risk and at the same time enhance the growth of the CRE market.

Skill-Biased Technological Change and Endogenous Labor Supply in EU Transition Economies and the US

In this paper skill-biased technological change is linked with endogenous labor supply which allows for unemployment. This is a novel approach, as the literature on skill-biased technological change considers inelastic labor supply. Elastic labor supply allows us to explain how the observed increasing unemployment of unskilled workers is caused by skill-biased technological change. Our numerical analysis shows that if the skill-biased technological change is not followed by the growth of total factor productivity, then output, physical capital stock and consumption decline. Using empirical data on wages and education, we construct a time series for skill-biased technological change for Poland and the US. The empirical relevance of the model is tested by calibrating it to empirical data for Poland over the period 1996-2006 and US over the period 1992-2008. With only two necessary inputs, share of skilled workers in total population and the technology adopted by firms, this model allows to simulate the future behaviour of the labor market.

Property valuation for mortgage purposes in Poland

Purpose The purpose of this paper is to describe the property valuation methods that are applied in Poland. It shows that they base on international standards and are a reliable source of information for international investors and banks. Design/methodology/approach The valuation methods are described and critically assessed, potential problems are pointed out. The analysis of lending risk is analysed on data about non-performing loans (NPL). Findings Polish valuation methods are in line with international methods, but there are some risks, like small number of transactions, subjective behaviour of valuers. The low NPL ratios indicate that the valuation works correctly. Practical implications The Polish valuation methods are trustworthy, non-performing mortgage ratios are low, however, banks and investors should ask whether there is a local zoning plan. Moreover, they should look critically at the comparables that were used during the valuation process, if in their opinion the valuation is overly low or high. Originality/value This paper focusses on valuation from a financial stability perspective. It uses Polish literature and data on NPLs to give an insight on valuation of property and mortgage risk in Poland. Besides the review of the methods it points out the problems related to valuation uncertainty, such as the risk of subjective behaviour of valuers and the low number of transactions in some regions, which are used for valuations.

Spatial and Hedonic Analysis of House Price Dynamics in Warsaw, Poland

AbstractThe aim of the paper is to analyze the dynamics of house prices in the housing market in Warsaw, Poland, taking into account the spatial relationship between prices. In the first part of th...

The behaviour of housing developers and aggregate housing supply

The article presents an theoretical analysis of the developer sector, which bases on the observed functioning of the market. We explain the behaviour of developers in the short and medium run and show why they add to the creation of a real estate bubble instead of mitigating it. The bubbles result from the interactions between housing developers who keep high prices and households, who increase housing demand even if house prices rise. The housing developer, due to the asymmetry of information, is able to take advantage of a local monopoly and differentiate prices. This allows him to sell apartments of a similar construction to each client at a different price, thanks to which he maximizes profits. However, when the developer overestimates demand or the competition gets tougher, his production costs grow and the possibility to differentiate prices is reduced. This has a direct impact on the profits that he can generate. The consequence of this phenomenon is a more flexible ex post curve of developer supply. As a result, there is a tendency to overproduction in the developer sector, which deepens the cyclical nature of the housing market.

Recent Trends in the Real Estate Market and its Analysis, 2013, Volume 1

The Narodowy Bank Polski organized during November 14-15, 2013 an international workshop to discuss current issues in the field of real estate analysis from the central bank’s point of view. The development of residential real estate prices as well as commercial real estate prices and real estate financing were also covered during the workshop. The workshop was aimed at researchers who work in academia, private firms and central banks. The conference focused on topics: Real estate finance, fiscal and monetary policy and the macroeconomic and financial stability – analysis and the monitoring of real estate indicators; Modeling of real estate cycles (demand and supply); The development of property prices, its modeling and analysis.