Interactions between monetary and fiscal policy: how monetary conditions affect fiscal consolidationThis paper assesses how and in what circumstances, fiscal consolidations are affected by monetary conditions, using data covering 24 OECD countries over the past 25 years, Focusing on fiscal consolidation "episodes", it is found that these tend to occur when large budget deficits threaten sustainability and usually when other macroeconomic indicators --inflation, the exchange rate and unemployment --suggest a "crisis" situation. After controlling for these factors, the paper finds strong econometric evidence that consolidation efforts are more likely to be pursued and to succeed if the monetary policy stance is eased in the initial stages of the episode, thus contributing to offsetting the contractionary impact of fiscal tightening. However, the link is far from mechanical and there are also counter-examples where monetary easing was followed by aborted consolidation efforts. Central bank independence explicitly precludes direct responses of monetary policy to fiscal actions. However, the paper also provides evidence that the indirect reaction of monetary policy and financial markets to fiscal consolidation may be influenced by the quality of fiscal adjustment, as short and long-term interest rates are more likely to fall during episodes characterised by greater reliance on current expenditure cuts. While this means that causality runs both ways, the paper provides evidence that, even after controlling for this proxy of fiscal adjustment quality, changes in monetary stance do affect the chances that a fiscal retrenchment plan will be successfully pursued.

This 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.

Long-term bond yields have been low in recent years both in nominal and real terms, and -especially in the United States -they have reacted differently to shifts in monetary and fiscal stances relative to previous cycles. This article examines various possible explanations for this behaviour, such as the effects of changes in monetary policy frameworks on inflation and interest rate expectations; developments in ex ante saving-investment balances, and shifts in investors' portfolio preferences (including official reserve accumulation, "petro-dollar" recycling and pension fund demand for longer maturities). The paper finds that it is unlikely that any individual explanation can account for the level and profile of bond yields in recent years, but that an important element has been a compression in term premia, together with shifts in expected short rates. Even though bond yields have started to rise in the early part of 2006, they are unlikely to go back to the levels that prevailed in the 1980s or the early 1990s, as several of the factors that drove them lower are set to persist.

This paper argues that the lack of timely and decisive policy action to correct domestic and external imbalances contributed crucially to the build-up of financial excesses that led to the financial crisis and the Great Recession. We focus on 2002-07 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending; (b) the decision of China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, resulting in a huge build-up of their official reserves, in conjunction with sluggish domestic demand in surplus advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if substantial, globally coordinated demand rebalancing had been undertaken in a timely manner, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.

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 étude examine les liens entre les marchés immobiliers et le cycle économique dans les pays de l’OCDE, se concentrant sur le rôle des spécificités nationales des marchés immobiliers et hypothécaires sur l’inégale résilience face aux chocs économiques. Cette étude s’intéresse particulièrement au canal de transmission de la richesse immobilière à la consommation et aux facteurs expliquant la variabilité des prix des logements ; ces deux aspects contribuent à déterminer si le secteur immobilier joue un rôle stabilisateur ou non. Des estimations de la propension marginale à consommer la richesse immobilière sont présentées pour dix pays de l’OCDE. Ces estimations indiquent que les effets les plus important sur la consummation apparaissent dans les pays ayant des marchés hypothécaires de grande taille, efficients et réactifs. Le niveau de « complétude » du marché hypothécaire -- la mesure dans laquelle le marché peut offrir une variété de produits et répondre à un large éventail ...consumption, wealth, business cycles, house prices, mortgage markets, marchés hypothécaires, richesse, consommation, prix des logements, cycle économique