Real Estate and the Great Crisis: Lessons for Macroprudential Policy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractFrom a broad macro-financial structure perspective, overly easy credit conditions gave rise to house price booms and busts in several advanced economies (e.g., Ireland, Spain, and the U.S.), and, more specifically in the U.S., an underpricing of risk made possible by regulatory arbitrage and shadow financing fueled the credit and twin real estate bubbles of the mid2000s. Across countries and over time bubbles have been particularly acute in real estate markets reflecting not only the relatively inelastic supply of land and thin trading of real estate, but also the amplification of shocks via backward-looking price expectations and the funding of consumption off distorted and elevated prices. The macro-prudential lessons from the Great Crisis highlight the need to prevent the build-up of excess real estate financing and limit the amplification and correlation of real estate risks. And progress has been made in each of these areas through imposing tougher or new restrictions on the choice sets of lenders or of borrowers, with particulars varying across advanced economies. While regulatory reform of banking is going forward, significant challenges remain especially in dealing with correlated risks associated with securitization.

Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?

“…Regarding Pillar II, we maintain that it should be extended to include CRRs, and that to 3 years of maturity; a long-term asset is one that is characterized by more than 7 years of maturity. 5 While the restriction on lenders influence the supply side of credit, measures like the release of loan-tovalue (LTVs), loan-to-income (LTIs), and debt-to-income (DTIs) influences the demand for credit (Duca et al, 2018). Generally, the application LTV and DTI caps set a limit on the amount of lending to a particular customer based on the value of the asset is obtained (e.g., mortgage) or impose restrictions depending on the income of borrowers.…”

Macroprudential Policy: a Blessing or a Curse?

“…18 This is also partially driven by the differences in sample coverage and underlying policy studies (see more in Cerutti et al 2017). The main source of existing empirical analyses is data on asset-based instruments aiming at borrowers, such as caps on LTV and DTI ratios (see McDonald 2018, Cerutti et al 2017, Zhang & Zoli 2016, static capital requirements (see Vandenbussche et al 2015, Duca et al 2019, Duca & Ling 2020 , and institution-based policies, such as dynamic provisioning as a prototype of a countercyclical capital buffer (see in Cussen et al 2015, Aiyar et al 2014, Maddaloni & Peydro 2013, Shim et al 2013, which was in use even before the financial crisis of 2008. 19 The empirical literature on the use of macroprudential tools, as well as their effectiveness, can be divided into two groups.…”

Homeownership motivation, rationality, and housing prices: Evidence from gloom, boom, and bust‐and‐boom economies

“…For more on lessons for macroprudential policies in the context of real estate prices, see also Duca, Popoyan, and Wachter (2017). To mitigate these welfare issues, governments need to facilitate the provision of housing financing for lower income households.…”

“…To mitigate these welfare issues, governments need to facilitate the provision of housing financing for lower income households. For more on lessons for macroprudential policies in the context of real estate prices, see also Duca, Popoyan, and Wachter (2017).…”