Nathalie Girouard

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 ...

Recent House Price Developments

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.

Asset Price Cycles, “One-Off” Factors and Structural Budget Balances

This paper analyses two factors which may cause cyclically-adjusted budget balances to give a misleading picture of underlying fiscal trends. It first explores the implications of recent large asset-market related fluctuations in government revenues for the measurement of structural budget balances. And second, it reviews the impact of the increased recourse to stopgap “one-off” measures to control deficits. The results confirm that since the late 1990s revenues have been more buoyant than would have been warranted by the registered rate of nominal output growth and the impact of tax measures. The study suggests that from 1995 to 2000 the average contribution of “unwarranted” revenues to year-to-year changes in cyclically-adjusted budget positions ranged from negligible to around ½ per cent of GDP, the main countries affected being the United States, the United Kingdom, France and some Nordic countries. Conversely, the subsequent decline in tax receipts has been sharper than could ... Cette etude analyse deux facteurs qui peuvent contribuer a brouiller la lisibilite des positions budgetaires sous-jacentes evaluees par la mesure traditionnelle du solde budgetaire corrige des variations cycliques. Dans un premier temps, elle etudie les implications des recentes fluctuations des recettes fiscals associees aux marches boursiers sur la mesure du solde structurel. Dans un deuxieme temps, cette etude discute des effets du recours accru aux facteurs non-recurrents sur la maitrise des deficits. Les resultants confirment que depuis la fin des annees 1990, les recettes fiscales ont ete plus dynamiques que ne le laissaient suggerer le taux de croissance nominal de l’activite et les effets des mesures fiscales. Entre 1995 et 2000, la contribution moyenne des recettes non-expliquees au changement annuel du solde budgetaire corrigee pour les variations cycliques oscillerait entre zero et ½ pour cent du PIB, les principaux pays concernes etant les Etats-Unis, le Royaume-Uni, la ...

Housing Markets, Business Cycles and Economic Policies

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.