Should the Fed take extra action for the recent housing bubble? Evidence from asymmetric transitory shocks

Huang, MeiChi; Yeh, LinYing

doi:10.1007/s12197-014-9281-7

Cited by 10 publications

(6 citation statements)

References 56 publications

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“…6 The G7 or Group of Seven is a bloc consisting of strong industrial countries, namely, Canada, the United States, the United Kingdom, Germany, France, Italy, and Japan (Taylor, 2013). Other key studies such as Driffill (2013) and Huang and Yeh (2015) argued that systematic fiscal policies are more effective than monetary policies such as quantitative easing, which may hinder financial market stability by increasing the risk exposure of central banks. 8 Studies such as Taylor (2009), however, argue that low interest rates may have set the stage for the 2008 financial crisis.…”

Section: Discussionmentioning

confidence: 99%

“…9 For instance, irrational investors may trade against macroeconomic policies (Hanson & Stein, 2015;Yao et al, 2014). Other key studies such as Driffill (2013) and Huang and Yeh (2015) argued that systematic fiscal policies are more effective than monetary policies such as quantitative easing, which may hinder financial market stability by increasing the risk exposure of central banks. 10 This was primarily due to the fact that a common facet of the mandate of monetary authorities is to ensure price stability, which was thought to facilitate financial stability (Bernanke et al, 1999).…”

Section: Discussionmentioning

confidence: 99%

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The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

2018

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This study attempts to evaluate the efficacy of macroeconomic policies in resolving financial market disequilibria and to elucidate the influence of the political landscape and global financial integration on the policymaking process. The current investigation examines three macroeconomic policies: (a) government spending, (b) liquidity provision, and (c) central bank interest rates by analysing 21 countries around the globe. The results suggest that government spending is a suboptimal macroeconomic policy for mitigating imbalances in financial markets, as it may have destabilizing effects. Liquidity provision was found to be ineffective in facilitating financial market stability whereas the adjustment of interest rates was found to be a viable tool for mitigating financial market imbalances. Therefore, an appropriate policy framework would comprise the following: prudent government spending, conditional liquidity provision, and a reduction in interest rates following the development of financial market disequilibria. Furthermore, this study found strong evidence against the notion that political orientations influence policy frameworks, which were designed to redress financial market disequilibria. This study also found that global financial integration does not influence the policymaking process.

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

2018

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“…Head, Lloyd‐Ellis, and Sun (2014) propose a dynamic model of search and matching to discuss the responses of house price, sales, and construction to city‐specific income shocks in 106 U.S. cities. Under an MS framework, Huang and Yeh (2015) suggest that the housing markets in New York, Los Angeles, Boston, Chicago, and Washington were hit by asymmetric transitory shocks in 2005, and thus, they argue that the Fed could actively stabilize these metropolitan housing markets in the late‐stage housing boom. Miao, Ramchander, and Simpson (2011) investigate home price spatial dependencies, including return transmission patterns and volatility linkages, across 16 metropolitan housing markets.…”

Section: Literature Reviewmentioning

confidence: 99%

Regime switches and permanent changes in impacts of housing risk factors on MSA‐level housing returns

Huang

2019

Int. J Fin Econ

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This study assesses impacts of housing risk factors on metropolitan housing excess returns in the augmented housing pricing model. Credit and liquidity factors represent demand and supply sides, respectively, of housing markets. All metropolitan statistical areas have significant regime switches, and booms and busts are turbulent and influenced by the two factors. The explanatory powers of the liquidity factor shrivel for the boom‐bust and regime‐switching volatility specifications, and excess housing returns are less sensitive to nationwide housing dynamics after 2008. This study lends support to time‐varying exposures of housing excess returns to risk factors in terms of temporary switches and permanent changes.

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“…Roche adopts two‐state Markov‐switching frameworks to examine housing price dynamics. Recently, Huang and Yeh () provide evidence that asymmetric transitory shocks significantly capture Markov‐switching boom–bust regimes in metropolitan housing markets.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Their frameworks assume that the same unobserved state variable governs risk-adjusted stock returns (α), the volatility of excess returns, and the factor coefficients. Chang, Chen, and Leung (2011) and Roche (2001) Huang and Yeh (2015) provide evidence that asymmetric transitory shocks significantly capture Markov-switching boom-bust regimes in metropolitan housing markets.…”

Section: Literature Reviewmentioning

confidence: 99%

New sources of housing market risk: Asset pricing for the US state‐level housing markets

Huang

2019

International Finance

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This study develops three novel housing risk factors to explore the sources of risk in US state‐level housing markets. The asset‐pricing models enrich our investigations into housing markets from three perspectives: housing boom–bust, volatile–calm, and factors’ time‐varying impact regimes. The findings indicate that state‐level housing returns all show significant exposure to systemic risk of housing markets, but the demographic and economic factors’ explanatory powers for housing returns differ across markets. Although the liquidity factor is significant under all three frameworks, the inventory and credit factors show significant impacts only in the impact‐switching specification. There are differences in the responses of housing returns to various risk factors and shifts in housing regimes across state housing markets, depending on whether the states exhibited housing bubbles. The results suggest that an effective housing stabilization mechanism must be capable of tracking shifts in the relations between housing markets and risk factors.

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Should the Fed take extra action for the recent housing bubble? Evidence from asymmetric transitory shocks

Cited by 10 publications

References 56 publications

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross‐country analysis

Regime switches and permanent changes in impacts of housing risk factors on MSA‐level housing returns

New sources of housing market risk: Asset pricing for the US state‐level housing markets

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