Housing and the Macroeconomy: Inflation and the Financial Accelerator

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.     

Labor Market and Financial Shocks: A Time-Varying Analysis

We estimate a time-varying VAR model to analyze the effects of a financial shock on the U.S. labor market. We find that a tightening of financial conditions is highly detrimental to the labor market. We show that while negative financial shocks have been responsible for increases in unemployment, our model does not find significant contributions of financial shocks during periods of expansion. The source of this asymmetry is the time-varying standard deviation of the identified shock, which is higher in times of financial distress; on the other hand, we find that the transmission mechanism does not significantly change over time.     

Conference on Housing,Stability, and the Macroeconomy: International Perspectives

This article provides an introduction to the JMCB special issue on housing bubbles, the global financial crisis, and the ensuing recessions in countries that experienced housing busts. We focus on five themes that are important for policymakers and researchers alike: the domestic and international factors driving housing booms and busts, the relevance of the housing sector for the real economy, how monetary policy should react to housing booms and busts, how housing and mortgage finance reform could affect financial stability, and the broad lessons learned for macroeconomics and macroprudential policy.     

Fundamental Economic Shocks and the Macroeconomy

We ask how macroeconomic and financial variables respond to empirical measures of shocks to technology, labor supply, and monetary policy. These three shocks account for the preponderance of output, productivity, and price fluctuations. Only technology shocks have a permanent impact on economic activity. Labor inputs have little initial response to technology shocks. Monetary policy has a small response to technology shocks but "leans against the wind" in response to the more cyclical labor supply shock. This shock has the biggest impact on interest rates. Stock prices respond to all three shocks. Other empirical implications of our approach are discussed.     

Evidence on the Relationship between Housing and Consumption in the United States: A State‐Level Analysis

We estimate the dynamic effects of U.S. housing market shocks on state‐level spending and home prices from a dynamic common factor model, and identify housing demand and supply shocks using a sign‐restrictions approach. While state‐level spending and house prices gradually respond positively and persistently to aggregate housing demand shocks, there is significant variation across states in the magnitude of these responses. Cross‐state regressions of the estimated responses on an index of mortgage market development suggest that spending in states with greater opportunities for home equity borrowing is more sensitive to housing demand shocks than in states with fewer opportunities, which is consistent with the prominence of a “collateral” channel over a “wealth” channel in explaining the link between housing and the overall economy.     

The Allocation of Aggregate Risk,Secondary Market Trades,and Financial Boom–Bust Cycles

The financial crisis of 2007–08 started with the collapse of the market for collateralized debt obligations backed by subprime mortgages. In this paper we present a mechanism aimed at explaining how a freeze in a secondary debt market can be amplified and propagated to the real economy, and thereby cause a recession. Moreover, we show why such a process is likely to be especially strong after a prolonged expansion based on the growth of consumer credit and endogenously low risk premia. Hence, our model offers a new perspective on the links between the real and financial sectors, and we show how it can help make sense of several macro‐economic features of the 2001–09 period. The key elements of the model are heterogeneity across agents in terms of risk tolerance, a financial sector that allocates systematic risk efficiently across agents, and real decisions that depend on the price of risk.     

Financial Crises and Recapitalizations

We develop a dynamic stochastic general equilibrium model with financial frictions on both financial intermediaries and goods‐producing firms. Since financial intermediaries are highly leveraged, we show that the welfare gains from their recapitalization in response to large but rare net worth losses are as large as those from eliminating typical business cycle fluctuations. We also find that these gains are increasing in the size of the net worth loss, are larger when recapitalization funds are raised from the household rather than the real sector, and can be larger when lower idiosyncratic risk leads to higher leverage.     

Corporate Debt Structure and the Financial Crisis

We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008–09, namely, the observed shift from bank finance to bond finance, at a time when the cost of market debt rose above the cost of bank loans. We show that the flexibility offered by banks on the terms of their loans and firms' ability to substitute among alternative instruments of debt finance are important to shield the economy from adverse real effects of a financial crisis.     

Financial Frictions,Financial Shocks,and Aggregate Volatility

The Great Moderation was accompanied by an increase in financial volatility. We explore the sources of these divergent patterns in volatilities by estimating a model with time‐varying financial rigidities subject to structural breaks in the size of shocks, the monetary policy rule coefficients, and the average size of the financial rigidity. Institutional changes are key in accounting for the Great Moderation and in shaping the transmission mechanism of financial shocks. The increase in financial volatilities is accounted for by larger financial shocks, but the vulnerability of the economy to these shocks is significantly alleviated by the estimated changes in institutions.     

Predicting Long‐Term Financial Returns: VAR versus DSGE Model—A Horse Race

This paper considers a U.S. institutional investor who is implementing a long‐term portfolio allocation using forecasts of financial returns. We compare the predictive performance of two competing macrofinance models—an unrestricted vector autoRegression (VAR) and a fully‐structural dynamic stochastic general equilibrium (DSGE) model—for horizons up to 15 years. Although the performances are similar for short horizons, the DSGE model outperforms the VAR at forecasting financial returns in the long term. This model also generates substantially higher Sharpe ratios. Although it contains fewer unknown parameters, it benefits from economically grounded restrictions that help anchor financial returns in the long term.     

影响我国金融安全的国内外因素分析

20世纪末国际上不断出现的金融危机,在给全球特别是给新兴市场经济国家经济和金融带来巨大破坏的同时,增强了人们的金融安全意识,也促使我们更加关注我国的金融安全。不可忽视的是,在我国金融开放进程中,国内外都存在危及我国金融安全的因素,这些因素交织在一起会引发我国的金融危机。     

Long‐Term Effects of Fiscal Policy on the Size and Distribution of the Pie in the UK*

This paper provides a joint analysis of the output and distributional long‐term effects of various fiscal policies in the UK, using a vector autoregression (VAR) approach. Our findings suggest that the long‐term impact on GDP of increasing public spending and taxes is negative, and especially strong in the case of current expenditure. We also find significant distributional effects associated with fiscal policies, indicating that an increase in public spending reduces inequality while a rise in indirect taxes increases income inequality.     

金融信用发展演变研究

由信用风险引发的美国金融危机引起了我们对金融信用的反思。随着金融信用发展,金融信用的内涵和外延在不断变化。本文研究了金融信用的演进历程,根据不同发展时期的特征,将金融信用的发展划分为五个阶段:道德化、法制化、商业化、证券化及风险的市场化阶段。每一发展阶段,金融信用的作用和蕴含的风险是不同的,而目前的金融信用蕴含的信用风险,成为金融危机的重要诱因。     

State‐Dependent Transmission of Monetary Policy in the Euro Area

We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 1999–2015. In contrast to other classes of nonlinear vector autoregressive models, regime affiliation is neither strictly binary, nor binary with a transition period, and based on multiple variables. We show that monetary policy transmission in the euro area can be described as a mixture of two states. In both states, output and prices are found to decrease after contractionary monetary policy shocks. However, the effects of monetary policy are less enduring in the “crisis state.”     

Global Liquidity,House Prices,and the Macroeconomy: Evidence from Advanced and Emerging Economies

In this paper, we first compare house price cycles in advanced and emerging economies using a new quarterly house price data set covering the period 1990–2012. We find that house prices in emerging economies grow faster, are more volatile, less persistent, and less synchronized across countries than in advanced economies (AEs). We also find that they correlate with capital flows more closely than in AEs. We then condition the analysis on an exogenous change to a particular component of capital flows: global liquidity, broadly understood as a proxy for the international supply of credit. We identify this shock by aggregating bank‐to‐bank cross‐border credit and by using the external instrumental variable approach introduced by Stock and Watson (2012) and Mertens and Ravn (2013). We find that in emerging markets (EMs) a global liquidity shock has a much stronger impact on house prices and consumption than in AEs. We finally show that holding house prices constant in response to this shock tends to dampen its effects on consumption in both AEs and EMs, but possibly through different channels: in AEs by boosting the value of housing collateral and hence supporting domestic borrowing; in EMs, by appreciating the exchange rate and hence supporting the international borrowing capacity of the economy.     

企业财务危机成因探析

企业财务危机具有积累性、再现性、突发性、损失性等特征。公司治理结构不完善、内部控制不健全是产生财务危机的内部基础原因。主营业务萎缩、成本上升、重大投资失败、过度负债、大股东占用资金以及不当担保等,是产生财务危机的内部具体原因。     

Political Regimes and the Cost of Disinflation

This study investigates, using data from 1960 to 1998, whether the nature of political regimes can help explain cross‐national and intertemporal variations in the cost of disinflationary policies, as measured by the sacrifice ratio. We show that, ceteris paribus, right‐wing governments have lower costs of disinflations than left‐wing governments. We argue this is due to a superior credibility, resulting from their stronger anti‐inflation reputations. In addition (and in marked contrast to previous studies), we find that when we control for political regimes, trade openness, and other standard factors in this literature, central bank independence has no significant effect on the sacrifice ratio.     

International Business Cycle and Financial Intermediation

The paper extends a standard two‐country international real business cycle model to include financial intermediation by banks of loans and government bonds. The paper contributes an explanation for both the United States relative to the Euro‐area, and the United States relative to China, of cross‐country correlations of loan rates, deposit rates, and the loan premia. It shows a type of financial retrenchment for the United States relative to both Europe and China following a negative bank productivity shock, such as during the 2008 crisis. After 2008, results suggest that the Euro‐area has been more financially integrated with the United States, and China less financially integrated.     

Nonlinear Effects of Mortgage Spreads Over the Business Cycle

This paper provides robust evidence for the nonlinear effects of mortgage spread shocks during recessions and expansions in the United States. Estimating a smooth-transition vector autoregression (STVAR) model, we show that mortgage spread shocks hitting in a recessionary phase create significantly deeper and more protracted declines in consumption and housing market variables. In addition, we provide evidence that these mortgage spread shocks could be largely interpreted as credit supply shocks in the mortgage market. Our empirical results imply that unconventional monetary policy, such as the Federal Reserve's mortgage-backed security purchase program, would be a more effective tool for stabilizing the economy during recessions than in expansions.