house prices, expectations, and time-varying fundamentals: discussion presented by a.g. malliaris...
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HOUSE PRICES, EXPECTATIONS,AND TIME-VARYING FUNDAMENTALS: DISCUSSION
Presented by A.G. Malliaris
AMERICAN ECONOMIC ASSOCIATION
Allied Social Science Associations Annual MeetingsSan Diego, California, January 3-6, 2013
Outline of Discussion
• Overview of Housing Prices• The Financial Crisis• Modeling Choices• Results• Comments
US Housing Bubble and Monetary Policy
• Controversial Issue• Taylor’s Views• The Fed’s Views• More Practically: How to Respond to a
Growing Bubble?• The Asymmetric Approach: High Cost Ex-post• The Symmetric Approach: Cost Ex-ante
Housing Bubbles and Institutions
• High Transactions Costs• Social Policies Favoring Housing• Forecasting Value of Collateral• Low Down Payment Compared to Equity• Difficulty to Sell Short• Tracking the Banks, Households, Firms, Public
Sector
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.083
85
87
89
91
93
95
97
99
101
103
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
(%, Seasonally adjusted, inverted)
Unemployment Rate(right scale)
Sources: US Department of Labor, FRB
(2007=100, Seasonally adjusted)
Last seen in 2005
Unemployment rate:Last seen in 1983
Industrial Production:Last seen in 1997
Industrial Production(left scale)
Exhibit 4. US Economy Is still a Long Way from Previous Peak
9
Exhibit 5. Euro-Zone Economy Is still a Long Way from Previous Peak
10
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.085
90
95
100
105
110
115
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sources: Eurostat
(%, Seasonally adjusted, inverted)(Seasonally adjusted, 2005=100)
Industrial Production(left scale)
Unemployment Rate(right scale)
Last seen in 1997
Last seenin 2005
Exhibit 11. Japan’s De-leveraging with Zero Interest Rates Lasted for 10 Years
11
-6
-4
-2
0
2
4
6
8
10
-15
-10
-5
0
5
10
15
20
25
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Borrowings from Financial Institutions (left scale)
Funds raised in Securities Markets (left scale)
CD 3M rate (right scale)
(% Nominal GDP, 4Q Moving Average) (%)
Sources: Bank of Japan, Cabinet Of f ice, Japan
Debt-financedbubble
(4 years)
Balance sheetrecession(16 years)
Funds Raised by Non-Financial Corporate Sector
Important Contribution
Behavioral Issues
Concluding Comments
• Paper makes an important contribution by proposing and calibrating 3 models
• In view of major shifts in monetary policy does it make sense to check for robustness? Consider 1960 to 1994 and 1995 to 2011?
• Do the 3 models have implications for monetary policy?
• Possible use of Behavioral Finance Arguments such as momentum?