Housing and the Macroeconomy: Inflation and the Financial Accelerator

Abstract

Three themes connecting housing and the macroeconomy are discussed. First, evidence is presented for the property market as one of the drivers of U.S. consumer price inflation. Second, key drivers of house prices are explained to account for the remarkable diversity of international experience. Finally, three potential links between housing, credit, and the financial accelerator are discussed. These are the consumption channel, the investment channel, and feedback between bad loans and risk‐spreads via the financial system—and how institutional differences between countries can explain the presence, absence and magnitudes of these linkages.

House Prices and Monetary Policy in the Euro Area: Evidence from Structural VARs

“…Countries with a high LTV ratio are characterized by higher marginal opportunity to borrow. This argument is also made in Muellbauer (2015), where the author argues that in countries with low first-time buyer FTB-LTV ratio, higher house prices may have a negative impact on aggregate consumption if they are not accompanied by higher income or income growth expectations. The main reason is that those who want to become owner-occupiers need to save more while renters anticipate higher rents in the future which therefore negatively affects their spending decisions.…”

“…16 Second, the impact of the shock on inflation are larger and significant in the case of Germany, France, and Spain. Muellbauer (2015) argues that in Germany, having a system of comparatively flexible rent controls, an increase in house prices may be followed by a rise in rents affecting in turn inflation developments. House prices and the market for loans.…”

Money, Credit, House Prices and Quantitative Easing – The Wavelet Perspective From 1970 to 2016

“…End of Table 1 Money, credit and house prices are influenced by many concomitant factors including lending standards, financial innovations, institutional differences (Muellbauer, 2015), capital inflows from the rest of the world (Sá & Wieladek, 2015) due to the global savings glut (Bernanke, 2005) and by "loose" monetary policy (Gete, 2015). According to the theory, the interrelations between money/credit growth and house price inflation reveal through housing wealth, an optimal portfolio adjustment mechanism, search-for-yield behaviour, the so-called "risk-taking" channel of monetary transmission, collateral effects on credit demand and credit supply, Tobin's q effects on investment and a lower discount factor as outlined in detail by Goodhart and Hoffman (2008) and European Central Bank [ECB] (2010, pp.…”

From financial instability to green finance: the role of banking and credit market regulation in the Eurace model

“…Furthermore, more recently, a large number of explanations proposed about the financial crisis highlight the credit boom occurred in the mid 2000s, in particular in relation to mortgage lending practices and the related housing bubble (see e.g. Keen et al (2009); Turner (2013); Muellbauer (2015), along with the ensuing subprime crisis that is considered the triggering cause of the 2007/2008 financial crisis (Duca et al, 2010). In this respect, extensive empirical research shows the connection between credit and housing bubbles and bursts, see e.g.…”