Khalid ElFayoumi, Ms. Izabela Karpowicz, Ms. Jenny Lee, Ms. Marina Marinkov, Ms. Aiko Mineshima, Jorge Salas, Andreas Tudyka, and Ms. Andrea Schaechter
Many European economies have faced pressure from rental housing affordability that has widened social and economic divergence. While significant country and regional differences exist, this departmental paper finds that in many advanced European economies a large and rising share of low-income renters, the young, and those living in cities is overburdened. In several locations, middle-income groups also increasingly face rental affordability issues.
Giancarlo Corsetti, Joao B. Duarte, and Samuel Mann
We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity, which we find to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. Building a small open economy model featuring a housing sector and calibrating it to Spain, we show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the responses of output and private consumption.
International Monetary Fund. Monetary and Capital Markets Department
This technical note on nonfinancial corporations and households vulnerabilities on France analyzes the structure of nonfinancial corporate financing in the French economy, potential vulnerabilities of the corporate sector, and their possible channels of transmission through interconnections with the financial system. The objective of this paper is to document the evolution of French corporate debt since the global financial crisis, analyze the riskiness of this debt, the quality of allocation of this debt, and uncover potential heterogeneity across sectors and firms which may have implications at the macroeconomic level. This paper also complements existing studies by the Institut National de la Statistique et des Études Économiques, the Haut Conseil de Stabilité Financière and the Banque de France by undertaking a cross-country comparative analysis. Empirical analysis suggests that corporate debt may be allocated efficiently across publicly listed companies, but the picture is less clear among nonpublicly listed firms.
House prices in many advanced economies have risen substantially in recent decades. But experience indicates that housing prices can diverge from their long-run equilibrium or sustainable levels, potentially followed by adjustments that impact macroeconomic and financial stability. Therefore there is a need to monitor house prices and assess whether they are sustainable. This paper focuses on fundamentals expected to drive long run trends in house prices, including institutional and structural factors. The scale of potential valuation gaps is gauged on the basis of a cross-country panel analysis of house prices in 20 OECD countries.
The crisis has highlighted the importance of setting up macro-prudential oversight
frameworks, having effective macro-prudential instruments in place to be called upon to
mitigate growing financial imbalances as needed. We develop a new approach using the euro
area Bank Lending Survey to assess the effectiveness of macro-prudential policies in
containing credit growth and house price appreciation in mortgage markets. We find
instruments targeting the cost of bank capital most effective in slowing down mortgage credit
growth, and that the impact is transmitted mainly through price margins, the same banking
channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when
monetary policy is excessively loose.
Mr. Helge Berger, Mr. Thomas Dowling, Mr. Sergi Lanau, Mr. Mico Mrkaic, Mr. Pau Rabanal, and Marzie Taheri Sanjani
Potential output—in the sense of the GDP level or path an economy can sustain over the
medium term—is a crucial benchmark for policymakers. However, it is difficult to estimate
when financial “booms and busts” are driving the real economy. This paper uses a simple
multivariate filtering approach to illustrate the role financial variables play in driving
potential or sustainable output. The results suggest that it moves more steadily during
financial “boom and bust” periods than implied by conventional HP filter estimates, which
tend to more closely follow actual GDP. A two-region, multisector New Keynesian DSGE
model with financial frictions sheds light on the economic forces that could be behind the
results obtained from the filter. This has important implications for policymakers.
This note serves as a reference for balance sheet analysis, which should be read in conjunction with the IMF board paper on Balance Sheet Analysis in Fund Surveillance.
It provides a: compendium of good examples of balance sheet analysis from both bilateral and multilateral surveillance, covering a variety of topics; full listing of available balance sheet related macro datasets, including their relevance for surveillance, remaining limitations, and remedial measures being undertaken; summary of data availability for each Fund member; compilation of all the tools for balance sheet analysis developed by the Fund over the last decade; and toolkit featuring some new empirical applications that could help deepen balance sheet analysis in surveillance. These include illustrations of how to construct and use BSA matrices, general equilibrium and reduced form approaches, as well as tools to analyze sectoral vulnerabilities using micro data.
We suggest a new approach for analyzing the role of financial variables and shocks in
computing the output gap. We estimate a two-region DSGE model for the euro area, with
financial frictions at the household level, between 2000-2013. After joining the monetary
union, a decline in some countries’ borrowing costs contributed to a credit, housing and real
boom and bust cycle. We show that financial frictions amplified economic fluctuations and
the measure of the output gap in those countries. On the contrary, in countries such as France
and Germany, financial frictions played a minor role in output gap measures. We also present
evidence of the trade-offs faced by the European Central Bank when trying to stabilize two
regions in a currency union with unsynchronized economic cycles.