Household indebtedness in Korea: Its causes and sustainability

This paper investigates why household debt in Korea has increased so rapidly over the past decade and whether it is sustainable, adopting a multi-faceted approach which includes a time series analysis, a quantitative analysis based on household panel data, and an analysis using a debt dynamics equation derived from the household budget constraint. A regression analysis reveals that household debt growth has been significantly related to house price increases, banks’ lax attitudes toward household lending, and financial institutions’ favorable funding conditions. Also 70–80% of the total debt increase has been accounted for by high income or newly indebted households. The debt dynamics equation analysis shows that the rapid rise in the ratio of household debt to disposable income is attributable not only to the increase in household asset purchases but also to the dampened growth in disposable income and the reduced savings rate. The sustainability analyses indicate that Korean households’ debt sustainability is unlikely to deteriorate sharply within a short period of time unless two extreme scenarios, under which house prices decline by 5% a year over the next five years, or a significantly large macroeconomic shock similar to the 1997 crisis hits the economy, would be realized.     

The role of market imperfections in the relationship between housing prices and household credit: Evidence from Taiwan

Given the credit market imperfections in Taiwan, this paper examines the threshold effects in the adjustment towards the long‐run equilibrium relationship between housing prices and household credit. The empirical findings verify the potential for regime shifts in the dynamically adjusted relationship between housing prices and household credit. Only when the benefits cover the cost of market imperfections, do housing and credit markets trigger convergence to their long‐run equilibrium. The hidden effect of the limitations on housing and credit markets is to raise the thresholds of the self‐adjustment mechanisms. As a result, economic boom‐bust cycles will be more severe and increase the fragility of financial sectors.     

资产财富和居民消费——来自中国省际面板数据的经验证据

随着"双循环"发展战略的提出，如何提升我国居民消费成为研究热点。与已有研究不同，文章首先从省际视角研究了居民消费行为的影响因素，证实了金融资产和住房资产分别对消费产生的促进作用和抑制作用，且金融资产的促进作用大于住房资产的抑制作用。其次，文章探讨了两种资产对不同种类消费品的影响，金融资产增加主要促进教育娱乐医疗等改善性消费，住房资产增加则主要抑制基本品消费。最后，文章对不同省份居民消费的影响因素进行异质性分析，发现金融资产对消费的促进作用随收入、资产增加先上升后下降，而住房资产对消费的抑制作用随收入、资产增加先上升后下降，金融资产和住房资产在东部地区影响小于西部地区，且受区域教育、人口和收入结构影响。综上来看，提升居民收入水平，改善居民收入结构，控制房价过度上涨，改善资本市场在资产分配中的作用，加大政府在教育、医疗、养老等公共服务方面的投入能够有效改善家庭资产结构，提升居民消费水平。     

Impacts of household loan regulation on financial stability: evidence from Korea

The paper examines whether banking regulations and monetary policy contributed to controlling the fragility of household debt in Korea. The results show that housing loan regulations such as debt to income regulation contributed to a lower household debt delinquency ratio. Lowering the target interest rate provided additional stabilisation of the delinquency ratio. It is recommended that the government adopt an appropriate mix of regulation and monetary policy to control household financial fragility. The financial supervisory services need to be involved in managing debt to income regulation and minimising financial instability and financial market distortions. Further, the monetary authority has to adopt a more effective position in controlling the real lending interest rate and the delinquency ratio of household loans. Such a policy mix will improve effectiveness in controlling financial fragility, especially at a time of financial crisis.     

Housing prices and the high Chinese saving rate puzzle

China's over 25% aggregate household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast-rising housing prices in China. However, cross-sectional data do not show a significant relationship between housing prices and household saving rates. This article uses a simple consumption-saving model to explain why rising housing prices per se cannot explain China's high household saving rate. Although borrowing constraints and demographic changes can translate housing prices to the aggregate saving rate, quantitative simulations of our model using Chinese time-series data on household income, housing prices, and demographics indicate that rising mortgage costs can increase the aggregate saving rate by at most 2 to 4 percentage points in the best down-payment structure.     

华东地区住宅价格空间格局及其演化研究

住宅价格空间格局不论对于学界还是决策层来说都是一个重要课题。文章运用探索性空间分析方法,对华东地区2005-2011年间区域住宅价格空间格局及其时空演化进行了研究,得到了以下结论：总体上,华东地区房价水平区域之间的分异程度较高,空间相对与绝对差异都不断增长;华东地区住宅价格的空间相关性以长三角地区为核心,逐层衰减分布;同时,沿海地区的空间相关性往往高于内陆。住宅价格趋同现象较为显著的除了长三角地区之外,还有江西省、山东南部与安徽北部,但前者是高高聚集,后者是低低聚集;整个华东地区住宅价格的重心主要向长三角地区偏移。导致华东地区住宅价格变化的主要原因为居民收入水平、住房的供需、货币投放量。但其中供需机制与传统供需理论呈现反向作用趋势。     

Housing price and household savings rates: evidence from China

This article investigates the effect of house prices on household savings rates in urban China employing the 2002 and 2007 data of the Chinese Households Income Project (CHIP). We find that the rapid appreciation of house prices cannot explain high Chinese households’ savings rates and the rising of Chinese savings rates. On the contrary, we find a negative relationship between house prices and household savings rates for home renters and homeowners. We do not find any evidence of ‘savings for housing purchase’ for young home renters when house prices increase. Their savings rates declined during housing market booms in recent 10?years. Savings rates of homeowners possessing multiple housing have decreased more because of ‘the pure housing wealth effects.’     

The Long‐run and Short‐run Effects of Foreign Direct Investment on Financial Development in African Countries

This paper contributes to the understanding of the other neglected effects of foreign direct investment (FDI) by analysing how FDI affects financial development in the short run and long run for a panel of 49 African countries over the period 1990–2016. The empirical evidence is based on a pooled mean group approach. With three panels differentiated by income level, the following findings are established: first, while there is a positive and significant long‐run relationship between FDI and financial development in Africa, in the short run the effect of FDI on financial development is negative. Second, the effect of FDI is positive and significant in the long run in the three sub‐samples. However, in the short run, the effect of FDI is negative and significant in lower‐income countries and non‐significant in lower‐middle‐income and upper‐middle‐income countries. Overall we find strong evidence supporting the view that FDI promotes financial development in African countries in the long run.     

The Balassa-Samuelson Hypothesis and Oil Price Shocks in a Small Open Economy: Evidence from Cyprus

Focusing on a small open economy, this paper provides very supportive evidence for the Balassa-Samuelson productivity-bias proposition. Using a battery of tests we show that a positive and significant long run relationship exists between the relative price of nontraded goods and real income per capita. An implication of this result is that the prices of services in Cyprus will rise, if EU membership leads to income convergence with the rest of the EU. We have, furthermore, demonstrated that Rogoff's hypothesis, that real oil price changes negatively affect the price of nontradables, is supported by the empirical results.     

The Role of Credit in the 2007–09 Great Recession

This paper examines the financial crisis of 2007/9 and the downturn in the U.S. We argue that effective demand over the 2001?C2006 expansion was maintained by credit. The role of credit in a Vector Error Correction Model and Granger-causality between aggregate spending, credit, disposable income, and profits are examined. We show that credit itself is determined by factors outside the circular flow of income. The results raise new hypotheses about the crucial relationships in macroeconomics that sustain aggregate spending. We then compute the generalized impulse responses in the VECM to demonstrate the severity of the downturn and show that legislative changes that dismantled the restrictions placed on the financial sector and the consequent structural changes after 1980 enabled the growth of new debt instruments and credit. The overexpansion of credit when profits and house prices were declining in 2005/06 and informational asymmetries on the quality of credit and its sudden withdrawal in 2007 paralyzed the economy and led to the Great Recession.     

Are House Prices Responsible for Unemployment Persistence?

The paper analyses the ambiguous role of house prices and housing investment for unemployment dynamics. Whereas traditional models see an increase in house prices as a dynamic multiplier that contributes positively to business cycle swings, the paper considers additional transmission mechanisms via the competitiveness channel (wages) and productivity. As house prices rise, wages tend to follow in order to make up for the loss in real disposable income, which limits employment creation. In addition, with rising house prices, the relative size of the construction sector – a low-productivity industry – tends to increase, lowering aggregate productivity growth, further dampening competitiveness. The paper estimates a stylised dynamic general equilibrium model with unemployment flows. Introducing different transmission mechanisms through which the housing market influences labour and macroeconomic dynamics, the size and direction of the housing market channel is being analysed. The estimation results show that housing shocks can have long-lasting negative effects on employment even though a housing boom can generate a short-lived stimulus on growth and employment. The paper also offers some policy advice simulating housing shocks under different types of structural reforms and macro-prudential regulation.     

METROPOLITAN HOUSE PRICES IN SOUTH AFRICA: DO THEY CONVERGE?

The question this paper investigates is whether or not different metropolitan areas each constitute a separate housing market or whether or not there is a single South African housing market. Theory on the Law of One Price suggests that if products or geographic areas belong in the same market, their absolute prices must converge, so that their relative prices are stationary. By using cross-sectional time series data of five metropolitan areas, the paper tests for the Law of One Price by applying the Im, Pesaran and Shin panel unit root test. The paper finds strong evidence of convergence in large middle-segment house prices and weaker support for convergence in medium middle-segment house prices. In addition, the paper finds no evidence for convergence in small middle-segment house prices. This suggests the existence of a national market for large and possibly middle-segment houses in metropolitan areas, but separate metropolitan markets for small middle-segment houses. In addition, the paper estimates the speed of convergence and finds that large middle-segment house prices converge within two to seven quarters, while the speed of convergence for medium middle-segment house prices in three of the five areas is five to eight quarters.     

Trade Opening,Fiscal Reforms,Poverty, and Inequality: A CGE Analysis for Bangladesh

We assess the short‐ and long‐run impacts of tariff reform policies on Bangladeshi households' poverty and income distribution by developing an 86‐sector, four‐factor, and nine‐household‐group computable general equilibrium (CGE) model. The main findings are that the complete removal of tariffs leads to a decrease in overall poverty with rich household groups in a relatively better position. In the short run poverty incidence increases for rural landless, urban illiterate, and low‐educated household groups whereas rural large farmer and urban medium household groups enjoy improvements in all poverty indicators. In terms of income distribution, trade liberalization enhances inequality slightly, but there is a tendency towards more equitable distribution in the long run. The choice of a fiscal compensatory mechanism with consumption tax is likely to play a negative role in terms of poverty and inequality in the short run; however, interestingly, the results are pro‐poor in the long run.     

Housing affordability during the urban transition in Spain

During the decades prior to the Civil War, Spain experienced a rapid process of urbanization, which was accompanied by the demographic transition and sizeable rural–urban migrations. This article investigates how urban housing markets reacted to these far‐reaching changes, which increased demand for dwellings. To this end, this study employs a new hedonic index of real housing prices and constructs a cross‐regional panel dataset of rents and housing price fundamentals. This new evidence indicates that rents were not a significant financial burden on low‐income families and, hence, housing was affordable for the working classes. The article also shows that families’ access to new homes was facilitated by a sizeable growth in the housing supply. Substantial investments in urban infrastructure and the institutional framework enabled the construction of new homes at affordable prices. Our results suggest that housing problems were not as pervasive during the urban transition as the literature often seems to claim.     

Fiscal sustainability in the wake of the economic crisis in Korea

The total amount of government debt was expected to rise sharply over the following several years in the wake of the Korean financial and economic crisis in 1997, raising concern about the sustainability of government deficits and fiscal consolidation. This paper provides an overview of Korea’s fiscal stance after the financial crisis and the policy implications for fiscal consolidation by assessing fiscal sustainability. Sustainability tests are carried out and show that Korean fiscal policy for the period 1970–1999 should be regarded as sustainable. Indicators of sustainability are also measured to that Korean fiscal policy for the period 1970–1996 is sustainable. However, both the primary and tax gap indicators with a sharp rise in the debt ratios are shown to be worsening since 1997 indicating increasingly possible unsustainable fiscal policies. It implies that the current primary deficit is too large and current taxes are too low to stabilize the debt ratio.     

住房、负债与家庭股市参与——基于CHFS的实证研究

房产是家庭总资产的重要组成部分，近些年中国家庭在房产上的过度追逐必然影响到家庭的股票投资行为。不同于以往的研究思路，文章运用中国家庭金融调查数据，不仅研究了住房对家庭股市和风险资本市场参与的影响，验证了已有学者得出的住房对家庭参与金融市场的挤出效应；又进一步研究了不同类型的住房负债对该挤出效应的影响程度。首先，文章研究发现，住房对家庭参与股市和风险资本市场有显著的挤出效应，住房不仅降低了家庭进入股票和风险资本市场的概率，也降低了家庭参与股票和风险资本市场的深度。其次，文章研究发现，房屋负债抑制了住房对家庭股市参与的挤出效应，但房屋正规贷款和房屋民间借款对股市参与的影响相反，房屋正规贷款能够促进家庭参与股市，降低住房对股市参与的抑制作用；但房屋民间借款的存在增加了住房对家庭股市参与的挤出效应。文章认为，严控住房市场，抑制家庭多套房的投资行为，使多余的资金合理的流向金融市场，深化金融市场，才能促进金融市场健康有序的发展。     

China＇s Current Real Estate Cycle and Potential Financial Risks

I. Introduction Since the late 1990s, the debate on China’s current real estate cycle has aroused great attention. The People’s Bank of China, China’s central bank, initiated a series of macroeconomic management policies to prevent the real estate market from overheating. Since the real estate bubble in the early 1990s, the Chinese Government is conscious to attach great importance to the possible financial risks and corresponding shocks to China’s economy of the real estate market ove…     

Housing markets and the economy: the assessment

Housing markets have multiple interactions with the rest ofthe economy and these are surveyed in this paper. The driversof house prices include income, the housing stock, demography,credit availability, interest rates, and lagged appreciation,the latter a potential mechanism for overshooting. There israther less agreement on the determinants of new construction,though planning constraints are widely seen as a major issueand one of the causes of the UK housing affordability problem.The paper argues that housing collateral and downpayment constraintsare the key to understanding the role of house-price variationsin explaining medium-term consumption fluctuations. Institutionalvariations between countries and over time account for majordifferences in linkages between house prices and economic activity.This illuminates debates about how monetary and other policyshould react to house-price variations. The paper also discussesthe role of housing markets in explaining regional migrationand location decisions, intergenerational inequality, and restrictingaccess of the less affluent to public goods, such as good schools,which are capitalized in local house prices.     

房产信贷约束下中国房价波动与非住房消费的门槛效应分析

针对城镇居民非住房消费不足与高房价并存的典型现象,运用面板门槛模型对31个省区市2005—2019年的数据进行研究,探讨房价波动对非住房消费的影响并揭示空间差异。结果表明：房价波动对家庭非住房消费既有挤出效应也有财富效应,其中随着房产信贷约束的放松,挤出效应减弱,而财富效应增强;东部、中部、西部和东北部之间的门槛效应是异质的;各地区住房信贷约束水平存在明显差异,对房价与非住房消费之间的异质性关联起着至关重要的作用;房价波动和房产信贷约束并不是导致低消费的综合因素,无法负担的房价以及家庭抚养负担的增加是低消费的综合因素。因此,稳定房价仍是当务之急,房产信贷政策应与房地产市场的发展相适应,以促进消费。     

Dynamic Scoring in a Romer‐Style Economy

This article analyzes how changes in tax rates affect government revenue in a Romer‐style endogenous growth model. Lower tax rates on financial income (returns to physical capital and intellectual property) are partially self‐financing primarily because lower financial income taxes stimulate innovation and enhance labor productivity in the long run. In the baseline calibration, about half of a tax cut is self‐financing in the long run, substantially more than in the Ramsey model. The dynamics of the economy's response to a tax cut are very sluggish and, for some variables, nonmonotonic.