House prices, money, credit, and the macroeconomy

Abstract

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Competitiveness and Economic Growth in Romanian Regions

“…In the traditional approach, according to Goodhart and Hofmann (2008), the conections between cross-sections are neglected. The approach of Canova and Ciccarelli (2006) uses the VAR reparametrization to include the cross-sections linkages.…”

Housing and the business cycle in South Africa

“…Besides this, there exists a couple of other studies that have looked into the effect of real house prices on per capita economic growth at the provincial-level in South Africa using 1 See for instance, Leamer (2007), Fisher (2007), (Silos, 2007), Goodhart and Hofmann (2008), , Álvarez et al, (2010), Bulligan (2010), Bandt et al, (2010), Ferrara and Koopman (2010), , Ferrara and Vigna (2010), Ghent and Owyang (2010), Iacoviello (2010), Iacoviello and Neri (2010), Iacoviello and Pavan (forthcoming), Kiyotaki et al, (2011), Cinquegrana (2012, Kydland et al, (2012),. Note, however, there also exists a few studies, such as: Benhabib et al (1991), Greenwood and Hercowitz (1991), McGrattan, et al, (1997), Gomme et al (2001), Davis and Heathcote (2005), Iacoviello (2002Iacoviello ( , 2005 which had also emphasized the role of housing on business cycle way before the recent financial crisis.…”

An Early Warning System to Predict the House Price Bubbles

“…The striking role played by housing markets in the recent financial crisis has demonstrated that shocks in the housing sector can exert huge effects on real economic activity, in particular through their impact on private consumption and residential investment (Goodhart and Hofmann (2008)). Housing loans constitute the largest liability of households and account for a large proportion of bank lending.…”

“…However, the effects on housing wealth are not obvious. A permanent increase in house prices could have a positive effect for homeowners, but there is also a negative effect on tenants who have to pay higher rents, and on prospective first-time buyers who have to save more for their intended house purchase, see Poterba (2000) and Goodhart and Hofmann (2008). In addition, increases in the value of owner-occupied housing do not foster the ability of a household to consume more of other goods and services unless that household is willing to realize the increased value, for example, by moving into a less expensive flat.…”

“…The amplification mechanism due to the increase in borrowing capacity is captured by the financial accelerator, see Bernanke et al (1999) for the concept. This collateral-based accelerator tends to be higher in more deregulated financial markets, as financial innovation has increased the availability of funds for credit-constrained agents (Goodhart and Hofmann (2008)). Asymmetries are likely, as the effects of shocks to money and credit on house prices seem to be stronger when house prices are booming then otherwise.…”