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Europe > Iceland

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Cover IMF Working Papers
Housing Boom and Headline Inflation: Insights from Machine Learning
Yang Liu
,
Di Yang
, and
Mr. Yunhui Zhao
Inflation has been rising during the pandemic against supply chain disruptions and a multi-year boom in global owner-occupied house prices. We present some stylized facts pointing to house prices as a leading indicator of headline inflation in the U.S. and eight other major economies with fast-rising house prices. We then apply machine learning methods to forecast inflation in two housing components (rent and owner-occupied housing cost) of the headline inflation and draw tentative inferences about inflationary impact. Our results suggest that for most of these countries, the housing components could have a relatively large and sustained contribution to headline inflation, as inflation is just starting to reflect the higher house prices. Methodologically, for the vast majority of countries we analyze, machine-learning models outperform the VAR model, suggesting some potential value for incorporating such models into inflation forecasting.
Keywords:
Housing Price Inflation; Rent; Owner-Occupied Housing; Machine Learning; Forecast; machine-learning model; machine learning method; housing boom; D. forecasting result; Inflation; Housing prices; Housing; Consumer price indexes; Global; Europe; Australia and New Zealand; North America; Caribbean; VAR model
Cover IMF Staff Country Reports
Iceland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Iceland analyzes housing market risks and housing affordability. House prices in Iceland have increased markedly since the onset of the coronavirus disease-pandemic, with signs that the valuations have exceeded macro fundamentals and long-term trends. Overvaluation has important implications for macroeconomic and financial stability, and housing affordability. House price cycles seem to be closely linked with the business cycle, indicating an amplification risk in the event of price correction. Thus, well calibrated and coordinated policies are crucial to navigate the house price cycle, minimize adverse feedbacks, and reduce affordability risk. IMF’s quantitative analysis examines the interplay between house prices and related factors. The ongoing monetary policy tightening cycle should help address Iceland’s house price pressures. Further macroprudential tightening through binding and effective borrower-based measures could help contain systemic risks and create further buffers in the financial sector. In the medium term, focusing on structural measures that reduce construction costs and increase supply by eliminating red-tape and reducing the period for obtaining building permits is likely to have the highest pay-off.
Keywords:
housing affordability; D. containing housing market; C. informing housing market policy; Energy exchange transition; I. carbon absorption; Housing prices; Greenhouse gas emissions; Carbon tax; Housing; Global
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 Policy Papers
G20 Note On Environmentally Sustainable Investment For The Recovery
International Monetary Fund. Fiscal Affairs Dept.
This Note prepared for the G20 Infrastructure Working Group summarizes the main finding of the IMF flagships regarding the role of environmentally sustainable investment for the recovery. It emphasizes that environmentally sustainable investment is an important enabler for a resilient greener, and inclusive recovery—it creates jobs, spurs economic growth, addresses climate change, and improves the quality of life. It can also stimulate much needed private sector greener and resilient investment.
Keywords:
climate change; environmentally sustainable investment; public investment management; green infrastructure; IMF flagship; transparency policy; quality infrastructure investment agenda; energy efficiency improvement investment; management practice; Public investment and public-private partnerships (PPP); Infrastructure; Climate change; Job creation; Natural disasters; Global; Sustainable growth
Cover Staff Discussion Notes
A Post-Pandemic Assessment of the Sustainable Development Goals
Ms. Dora Benedek
,
Mr. Edward R Gemayel
,
Mr. Abdelhak S Senhadji
, and
Alexander F. Tieman
The COVID-19 pandemic hit countries’ development agendas hard. The ensuing recession has pushed millions into extreme poverty and has shrunk government resources available for spending on achieving the United Nations Sustainable Development Goals (SDGs). This Staff Discussion Note assesses the current state of play on funding SDGs in five key development areas: education, health, roads, electricity, and water and sanitation, using a newly developed dynamic macroeconomic framework.
Keywords:
Sustainable Development Goals, Development, Fiscal Policy, Structural Reform; policy option; composite index; case study countries' SDG spending; financing gap; SDG performance; analysis of development strategy; Sustainable Development Goals (SDG); COVID-19; Human capital; Emerging and frontier financial markets; Infrastructure; Sub-Saharan Africa; Global
Cover IMF Staff Country Reports
Iceland: Selected Issues Paper
International Monetary Fund. European Dept.
This Selected Issues paper examines implications of capital account liberalization in Iceland. Capital controls were critical in 2008 to avoid a more severe collapse of the Icelandic economy. Six years later, capital inflows have been liberalized, but most outflows remain restricted. Iceland has used the breathing room to reduce flow and stock vulnerabilities, strengthen institutions, and prepare for the lifting of capital controls. Simulations using the central bank’s Quarterly Macroeconomic Model (QMM) suggest that, compared with the 2008 crisis episode, the economy can better withstand the impact of an abrupt removal of capital controls. However, the outcome would be dependent on a number of factors, including resident depositor behavior.
Keywords:
ISCR; CR; Iceland; financial crisis; saving; investment; statistics Iceland; current account balance; FCI component; credit condition; saving rate; Housing prices; Personal income tax; Private savings; Global; East Asia; Europe
Cover World Economic Outlook, April 2012
World Economic Outlook, April 2012
Growth Resuming, Dangers Remain
International Monetary Fund. Research Dept.

Abstract

The April 2012 issue of the World Economic Outlook assesses the prospects for the global economy, which has gradually strengthened after a major setback during 2011. The threat of a sharp global slowdown eased with improved activity in the United States and better policies in the euro area. Weak recovery will likely resume in the major advanced economies, and activity will remain relatively solid in most emerging and developing economies. However, recent improvements are very fragile. Policymakers must calibrate policies to support growth in the near term and must implement fundamental changes to achieve healthy growth in the medium term. Chapter 3 examines how policies directed at real estate markets can accelerate the improvement of household balance sheets and thus support otherwise anemic consumption. Chapter 4 examines how swings in commodity prices affect commodity-exporting economies, many of which have experienced a decade of good growth. With commodity prices unlikely to continue growing at the recent elevated pace, however, these economies may have to adapt their fiscal and other policies to lower potential output growth in the future.

Keywords:
WEO; current account; U.S. dollar; trade balance; debtor economy; household debt; advanced economy; commodity exporter; General government net lending; net lending; Commodity prices; Housing prices; Oil prices; Mortgages; Global; Europe; Central and Eastern Europe; Asia and Pacific; Middle East; North Africa; housing bust; price cycle; restructuring program; Inflation; Caribbean; Eastern Europe
Cover IMF Staff Country Reports
New Zealand: Selected Issues
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Keywords:
ISCR; CR; bank; GDP; price; terms of trade boom; bank capital; New Zealand bank; asset quality; GDP increase; disclosure statement; Mortgages; Terms of trade; Return on investment; Fiscal stimulus; Capital adequacy requirements; Global
Cover IMF Staff Country Reports
Iceland: Selected Issues
International Monetary Fund
This Selected Issues paper for Iceland reports that it faces a considerably less favorable inflation-output variability trade-off than do Canada or the United States. A number of measures should be considered that could help minimize the cost of inflation breaching the tolerance band and help to lower the probability of such events occurring. To effectively target inflation, central banks need to be forward looking, responding early to prospective demand pressures. Having housing prices explicitly in the target ensures that the central bank will monitor developments in the housing market closely.
Keywords:
ISCR; CR; Iceland; mortgage market; consumption expenditure; Icelandic firm; inflation-output variability tradeoff; leverage ratio; consumption goods; excess demand pressure; rises in step; Mortgages; Inflation; Housing; Commercial banks; Housing prices; Western Europe
Cover IMF Working Papers
An Exploration of the Private Sector Response to Changes in Government Saving Across OECD Countries
Mr. Alun H. Thomas
Several recent papers have examined the response of national saving to changes in fiscal policy. This paper uses knowledge about the intergenerational fiscal position of a country to determine whether this information helps to explain cross country differences in the nature of the response. Using OECD data the paper finds that in countries in intergenerational fiscal balance, the private sector completely offsets fiscal policy changes whereas in other countries the private sector offset is only partial. Moreover, in countries with large intergenerational fiscal imbalances, strong fiscal consolidation packages reduce the impact of changes in fiscal policy on national saving.
Keywords:
WP; fiscal policy; intergenerational fiscal balance; Ricardian effects; national saving; saving rate; government saving; expenditure coefficient; saving position; Fiscal consolidation; Private savings; Fiscal stance; Europe