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Abstract
Why are some feeling the pinch from higher rates and not others? Chapter 2 investigates the effects of monetary policy across countries and over time through the lens of mortgage and housing markets. Monetary policy has greater effects where (1) fixed-rate mortgages are not common, (2) home buyers are more leveraged, (3) household debt is high, (4) housing supply is restricted, and (5) house prices are overvalued. These characteristics vary significantly across countries, and thus the effects of monetary policy are strong in some and weak in others. Moreover, recent shifts in mortgage and housing markets may have limited the drag of higher policy rates up to now in several countries. The risk that households may still feel the pinch should be taken seriously where fixed-rate mortgages have short fixation periods, especially if households are heavily indebted.The world economy's growth engine is losing steam, prompting questions about its medium-term prospects. Chapter 3 delves into the drivers behind the growth decline and identifies a significant and widespread slowdown in total factor productivity as a key factor, partly driven by increased misallocation of capital and labor between firms within sectors. Demographic pressures and a slowdown in private capital formation further precipitated the growth slowdown. Absent policy action or technological advances, medium-term growth is projected to fall well below prepandemic levels. To bolster growth, urgent reforms are necessary to improve resource allocation to productive firms, boost labor force participation, and leverage artificial intelligence for productivity gains. Addressing these issues is critical, given the additional constraints high public debt and geoeconomic fragmentation may impose on future growth. As G20 emerging markets account for almost one-third of world GDP and about one-quarter of global trade, spillovers from shocks originating in these economies can have important ramifications for global activity. Chapter 4 documents that, since 2000, spillovers from shocks in G20 emerging markets—particularly China—have increased and are now comparable in size to those from shocks in advanced economies. Trade, notably through global value chains, is a key propagation channel. Spillovers generate a reallocation of economic activity across firms and sectors in other countries. Looking ahead, a plausible growth acceleration in G20 emerging markets, even excluding China, could support global growth over the medium term and spill over to other countries. Policymakers in recipient economies should maintain sufficient buffers and strengthen policy frameworks to manage the possibility of larger shocks from G20 emerging markets.
Supplementary Materials
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World Economic Outlook, April 2024: Chapter 2: Feeling the Pinch? Tracing the Effects of Monetary Policy Through Housing Markets: Data File
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World Economic Outlook, April 2024: Chapter 2: Feeling the Pinch? Tracing the Effects of Monetary Policy Through Housing Markets: Online Annexes
Contributor Notes
The authors of this chapter are Mehdi Benatiya Andaloussi, Nina Biljanovska, Alessia De Stefani, and Rui Mano (lead), with support from Ariadne Checo de los Santos, Eduardo Espuny Diaz, Pedro Gagliardi, Gianluca Yong, and Jiaqi Zhao. Amir Kermani was an external consultant, and Jesper Lindé consulted on the modeling. The chapter benefited from comments by Stijn Van Nieuwerburgh and internal seminar participants and reviewers.
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