Title: International house price cycles, monetary policy and risk premiums
Authors: Gregory Bauer - Bank of Canada (Canada) [presenting]
Abstract: Three alternative causes of house price corrections are evaluated: anticipated tightenings of monetary policy, deviations of house prices from fundamentals, and rapid credit growth. A new cross-country measure of monetary policy expectations based on an international term structure model with time-varying risk premiums is constructed. House price overvaluation is estimated via an asset pricing model. The variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 OECD countries. The results show that corrections are triggered by increases in the market's forecast of higher policy rates. The estimated degree of house price overvaluation also contains significant information about subsequent price reversals. In contrast to the financial crisis literature, credit growth is less important. All of these variables help to forecast recessions.