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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 70 items for :

  • Type: Journal Issue x
  • Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure x
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Cover IMF Staff Country Reports
United Kingdom: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper analyses monetary policy issues in the UK. It examines key macro and financial indicators and assesses the effects of the tightening thus far. The paper finds that monetary transmission has largely mirrored previous episodes, with the most notable exception of the mortgage channel, which has been slower due to a higher share of fixed-rate mortgages. Additionally, it reveals an outsized impact of federal announcements on UK financial markets and argues that this will place a premium on Bank of England (BoE) communications in a context where the BoE may diverge. Monetary transmission in the UK during the current cycle has mostly worked as expected and has been similar to the experiences in other advanced economies. The paper identifies identify monetary policy surprises through changes in high-frequency market indicators within a narrow window around monetary policy announcement. The results indicate that Federal Open Market Committee spillovers do have a sizable effect on monetary transmission in the UK.
Keywords:
UK construction; UK workforce; spending scenario; Fed Policy spillover; MPC decision; visa regime; Housing; Education spending; Inflation; Global
Cover IMF Working Papers
European Housing Markets at a Turning Point – Risks, Household and Bank Vulnerabilities, and Policy Options
Ms. Laura Valderrama
,
Patrik Gorse
,
Ms. Marina Marinkov
, and
Petia Topalova
European housing markets are at a turning point as the cost-of-living crisis has eroded real incomes and the surge in interest rates has made borrowers more vulnerable to financial distress. This paper aims to (i) shed light on the risks in European housing markets, (ii) quantify household vulnerabilties, (iii) assess banking sector implications and (iv) examine policies’ effectiveness using simulations based on microdata from the Household Finance and Consumption Survey (HFCS) and EU statistics on income and living conditions (EU-SILC). Under the baseline IMF macroeconomic forecast, the share of households that could struggle to meet basic expenses could rise by 10 pps reaching a third of all households by end 2023. Under an adverse scenario, 45 percent of households could be financially stretched, representing over 40 percent of mortgage debt and 45 percent of consumer debt. The impact on the banking sector seems contained under the baseline forecast, though there are pockets of vulnerability. A 20 percent house price correction could deplete CET1 capital by 100-300 basis points. Fiscal measures, such as subsidies to the bottom income tercile, could save 7 percent of households from financial distress at an estimated cost of 0.8 percent of GDP.
Keywords:
Housing markets; overvaluation; affordability; household vulnerability; tenure status; income distribution; consumption; financial stability; targeted support; macroprudential policy.; EU banking sector; banking sector implication; housing market correction; house price correction; bank capital; Mortgages; Housing prices; Income; Housing; Europe; Eastern Europe
Cover IMF Staff Country Reports
Iceland: 2022 Article IV Consultation - Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2022 Article IV Consultation discusses that Iceland has weathered recent shocks to the economy relatively well. Well-designed policy measures and a solid health system eased the impact of the pandemic, allowing real gross domestic product and employment to recover strongly. Robust domestic demand and favorable terms of trade boosted output growth to 4.3 percent in 2021, despite slower recovery in tourism. Growth is expected to remain moderate in 2022 and the medium term. Careful policy coordination is required to entrench the recovery, stem risks and rebuild buffers to pre-pandemic levels. Policies should mitigate the flaring-up in inflation, external imbalances, and house prices. Structural reforms should facilitate economic diversification and make the economy more resilient to shocks. Diversification efforts should focus on easing regulatory burdens on start-ups and spurring innovation by leveraging Iceland’s human capital and advanced digital infrastructure. The new collective wage agreement can also foster diversification and resilience through better alignment of wage and productivity growth.
Keywords:
inflation expectation; liability positions vis-à-vis nonresident; steering inflation; housing policy; data standard; rising prices; policy coordination; Inflation; Housing prices; Housing; Government finance statistics; Central bank policy rate; Global
Cover IMF Working Papers
Equilibrium Foreign Currency Mortgages
Marcin Kolasa
This paper proposes a novel explanation for why foreign currency denominated loans to households have become so popular in some emerging economies. Our argument is based on what we call the debt limit channel, which arises when multi-period contracts are offered to financially constrained borrowers against collateral that is established on newly acquired assets. Whenever the difference between domestic and foreign interest rates is positive, this effect biases borrowers’ choices towards foreign currency, even if the exchange rate is known to depreciate as implied by the interest parity condition. We demonstrate in a structural macroeconomic framework that the debt limit channel is quantitatively important and can result in dollarization of debt also in the presence of realistic exchange rate risk. Comparing this outcome to allocations under constrained-optimal time-consistent policy reveals that a substantial part of the identified bias towards foreign currency is due to a pecuniary externality, i.e. borrowers’ failure to internalize how their currency choice affects collateral prices.
Keywords:
foreign currency loans; mortgages; portfolio choice; pecuniary externality; equilibrium foreign currency mortgage; debt limit channel; borrowers' failure; biases borrowers' choice; foreign currency loan; Currencies; Debt limits; Loans; Housing; Global
Cover IMF Working Papers
Non-Primary Home Buyers, Shadow Banking, and the US Housing Market
Mr. Adrian Alter
and
Zaki Dernaoui
This paper studies the US housing market using a proprietary and comprehensive dataset covering nearly 90 million residential transactions over 1998–2018. First, we document the evolution of different types of investment purchases such as those conducted by short-term buyers, out-of-state buyers, and corporate cash investors. Second, we quantify the contributions of non-primary home buyers to the housing cycle. Our findings suggest that the share of short-term investors grew substantially in the run-up to the global financial crisis (GFC), which amplified the boom-bust cycle, while out-of-state buyers propped up prices in some areas during the recession. An instrumental variable approach is employed to establish a causal relationship between housing investors and prices. Finally, we show that the recent rise of shadow bank lending in the residential market is associated with riskier mortgages, and explore its implications for non-primary home buyers and its effects on house prices and rents.
Keywords:
WP; house price; out-of-state buyer; zip code
Cover IMF Working Papers
A Conceptual Model for the Integrated Policy Framework
Mr. Suman S Basu
,
Ms. Emine Boz
,
Ms. Gita Gopinath
,
Mr. Francisco Roch
, and
Ms. Filiz D Unsal
In the Mundell-Fleming framework, standard monetary policy and exchange rate flexibility fully insulate economies from shocks. However, that framework abstracts from many real world imperfections, and countries often resort to unconventional policies to cope with shocks, such as COVID-19. This paper develops a model of optimal monetary policy, capital controls, foreign exchange intervention, and macroprudential policy. It incorporates many shocks and allows countries to differ across the currency of trade invoicing, degree of currency mismatches, tightness of external and domestic borrowing constraints, and depth of foreign exchange markets. The analysis maps these shocks and country characteristics to optimal policies, and yields several principles. If an additional instrument becomes available, it should not necessarily be deployed because it may not be the right tool to address the imperfection at hand. The use of a new instrument can lead to more or less use of others as instruments interact in non-trivial ways.
Keywords:
WP; exchange rate; FX intervention; interest rate; capital control; housing constraint; prudential tax; policy rate; Capital controls; Housing; Exchange rates; Currency markets; Central bank policy rate; Global; exchange rate flexibility; monetary policy; foreign exchange intervention; macroprudential regulation; housing sector; land price
Cover IMF Working Papers
The Costs of Macroprudential Deleveraging in a Liquidity Trap
Mr. Jiaqian Chen
,
Daria Finocchiaro
,
Jesper Lindé
, and
Karl Walentin
We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero-lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to loan-to-income tightening when debt is high and monetary policy cannot accommodate.
Keywords:
WP; lower bound; transmission mechanism; long-term debt; Household debt; Zero lower bound; New Keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices; DSTI constraint; LTV tightening; LTV constraint; LTI economy; Housing; Consumption; Global
Cover IMF Working Papers
Household Debt and House Prices-at-risk: A Tale of Two Countries
Mr. Adrian Alter
and
Elizabeth M. Mahoney
To identify and quantify downside risks to housing markets, we apply the house price-at-risk methodology to a sample of 37 cities across the United States and Canada using quarterly data from 1983 to 2018. This paper finds that downside risks to housing markets in the United States have seemingly fallen over the past decade, while having increased in Canada. Supply-side drivers, valuation, household debt, and financial conditions jointly play a key role in forecasting house price risks. In addition, capital flows are found to be significantly associated with future downside risks to major housing markets, but the net effect depends on the type of flows and varies across cities and forecast horizons. Using micro-level data, we identify households vulnerable to potential housing shocks and assess the riskiness of household debt.
Keywords:
WP; price; household debt; housing market risk; house price risk; credit condition; housing supply; house price fluctuation; house price growth; house prices in the U.S.; housing overvaluation; housing valuation; Housing prices; Housing; Capital flows; Capital inflows; Market risk; Global; Household Indebtedness; United States; Canada; Quantile Regressions
Cover IMF Staff Country Reports
People's Republic of China-Hong Kong Special Administrative Region: 2019 Article IV Consultation Discussions-Press Release; Staff Report; Staff Statement and Statement by the Executive Director for the People's Republic of China-Hong Kong Special Administrative Region
International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation with People’s Republic of China—Hong Kong Special Administrative Region (SAR) discusses that the economy is projected to start recovering next year, but the pace is expected to be gradual and both near- and medium-term risks have increased significantly, including from trade and technology tensions, ongoing social unrest, and structural challenges of insufficient housing supply and high income inequality. Hong Kong SAR is well placed to address both cyclical and structural challenges with its significant buffers thanks to its long history of prudent macroeconomic policies. Given that the fiscal framework permits deficits during economic downturns, government spending should be increased significantly in the areas of social safety nets, education/retraining, and infrastructure to cope with the cyclical downturn and address structural challenges of insufficient housing and high-income inequality. This should be complemented with measures to ensure fiscal sustainability and greater equity.
Keywords:
ISCR; CR; China; Hong Kong SAR; price; article IV consultation discussion; HK dollar; market expectation; exchange regime; property market development; market vulnerability; Housing prices; Housing; External sector statistics; Macroprudential policy instruments; Monetary statistics; Global
Cover IMF Working Papers
Informality, Frictions, and Macroprudential Policy
Moez Ben Hassine
and
Mr. Nooman Rebei
We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.
Keywords:
WP; interest rate; monetary policy; welfare gain; physical capital; inflation rate; adjustment cost; open economy; production function; interest rate rule; marginal utility; inflation targeting policy; nominal exchange rate; demand shock; Macroprudential policy; Self-employment; Consumption; Housing