Research
Work in Progress
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Interest Rates and Housing Costs
(current draft, joint work with Matthias Burgert and Victoria Otten)
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Since mid-2021, global housing markets have been confronted with the fastest monetary tightening in decades. To understand the possible implications of such a policy shift, this paper investigates how house prices and rents have historically reacted to interest rate increases, and how their reaction has depended on pre-existing conditions. We identify exogenous variations in interest rates relying on international spillovers from US monetary policy. We find no significant effects on average rents, but a reaction of house prices that is larger and more protracted than most of the previous estimates suggest. We further show that both, amplitude and speed of the reaction, considerably depend on initial conditions. For example, the reaction of house prices is larger when initial interest rates have been low, their increase occurs in a recession, and financial conditions are already tight to start with. A preceding house price boom slows the price reaction at first, but amplifies the price decline in the medium-term. Based on these results and current conditions, we estimate the individual countries’ exposure to interest rate shocks.
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House Prices, Ownership and Household Savings
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This paper investigates how house prices affect the saving decisions of Swiss households, depending on whether they own or rent their home. To address the endogeneity of house prices, geographic constraints to construction are used to proxy for the slope of the supply curve. The paper finds that higher house prices induce renters to save more, consistent with a tighter borrowing constraint for potential house purchases in the future. However, it finds no evidence of a housing wealth effect, as the reaction of savings by home owners is statistically and economically insignificant. The paper also implements a similar analysis with a cross-country panel of mostly-OECD countries. This extension primarily confirms the crucial role of home ownership in the relation between house prices and household savings. It also proposes pension regimes as an avenue to explain differences in the housing-wealth effect across countries.
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Credit Risk Compensation and the Measurement of the Current Account
(current draft)
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International income positions, which compensate for the risk of either a gradual or a discreet loss in the value of the principle, create a source of mismeasurement for the current account. They tend to overestimate the net international income relative to the expected accumulation of international assets. This paper jointly estimates to what extent cross-country differences in inflation and credit risk contribute to such a mismeasurement of the current account. To do so, it estimates different sensitivities for different types of investments and distinguishes the contributions of the absolute size of gross positions and their relative distribution across bilateral relationships. Preliminary results suggest that while the role of credit risk is more moderate than the one of inflation on average, it contributed significantly to the perceived international imbalances for some countries.
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