Predicting Downside Risks to House Prices and Macro-Financial Stability

Author: Valckx Nico

Volume/Issue: Volume 2020 Issue 011

Publication date: January 2020

ISBN: 9781513525839

$20.00

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Topics covered in this book

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Finance , Economics- Macroeconomics , Money and Monetary Policy , WP , monetary policy , house price , financial crisis , real GDP , House Prices , Growth at Risk , Panel Quantile Regression , Early Warning Models , Macroprudential Policy , Monetary Policy , overvaluation metrics , misalignment ratio , price dynamics , valuation variable , house price vulnerability , house price data , house price distribution , house prices valuation , house price overvaluation , house price imbalance , house price momentum , Housing prices , Housing , Emerging and frontier financial markets , Credit booms , Global

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Summary

This paper predicts downside risks to future real house price growth in 32 advanced and emerging market economies. Using a macro-model and predictive quantile regressions, we show that current house price overvaluation, excessive credit growth, and tighter financial conditions jointly forecast higher house-prices-at-risk up to three years ahead. House-prices-at-risk in turn predict future downside risks to economic growth and financial crises. We further investigate and propose policy solutions for preventing the identified risks. We find that tightening macroprudential policy is the most effective across both short and longer horizons, whereas a loosening of conventional monetary policy reduces short term downside risks only in advanced economies.