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"Hinterschweiger, Marc"
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Flexible exchange rates for a stable world economy
Volatile exchange rates and how to manage them are a contentious topic whenever economic policymakers gather in international meetings. This book examines the broad parameters of exchange rate policy in light of both high-powered theory and real-world experience. What are the costs and benefits of flexible versus fixed exchange rates? How much of a role should the exchange rate play in monetary policy? Why don't volatile exchange rates destabilize inflation and output? The principal finding of this book is that using monetary policy to fight exchange rate volatility, including through the adoption of a fixed exchange rate regime, leads to greater volatility of employment, output, and inflation. In other words, the \"cure\" for exchange rate volatility is worse than the disease. This finding is demonstrated in economic models, in historical case studies, and in statistical analysis of the data. The book devotes considerable attention to understanding the reasons why volatile exchange rates do not destabilize inflation and output. The book concludes that many countries would benefit from allowing greater flexibility of their exchange rates in order to target monetary policy at stabilization of their domestic economies. Few, if any, countries would benefit from a move in the opposite direction.
eBook
Flexible Exchange Rates and the World Economy
Cover -- Contents -- Preface -- Acknowledgments -- Ch 1. Introduction and Overview -- Exchange Rate Volatility Does Not Impede Steady Growth with Low Inflation -- Overview of this Book -- Ch 2. A World of Multiple Monies -- The Invention of Money -- Exchange Rate Regimes -- Economic Objectives -- Relative Advantages of a Currency Union or a Free Float -- Relative Advantages of Other Exchange Rate Regimes -- Ch 3. Are Floating Exchange Rates Too Volatile? -- The Theory of Exchange Rates with Mobile Private Capital -- What Moves Exchange Rates? -- How Adequate Is the Standard Model? -- The Missing Factor: Currency Risk Premiums -- Risk Premiums and the Mussa-Flood-Rose Puzzle -- Portfolios and Risk Premiums -- Appendix 3A Evidence on Interest Rate Parity -- Appendix 3B Evidence on Long-Run Purchasing Power Parity -- Ch 4. Do Volatile Exchange Rates Reduce Economic Output? -- Volatile Exchange Rates and Financial Transactions -- Volatile Exchange Rates and International Trade -- Direct Evidence on Output and Growth -- Conclusions -- Ch 5. Do Volatile Exchange Rates Destabilize Inflation and Output? -- Plan of This Chapter -- Lessons from Economic Research -- Five Historical Examples -- Trade Barriers, Trade Costs, and Taxes -- Product Differentiation and Brand Control -- Lags in the Adjustment of Trade Prices and Volumes -- Relative Importance of These Factors -- Conclusions -- Appendix 5A Studies of Substitution across Tradable Goods -- Appendix 5B Studies of Exchange Rate Effects on Trade Prices -- Appendix 5C Studies of Exchange Rate Effects on Consumer Prices -- Ch 6. Monetary Policy with Fixed and Floating Exchange Rates -- The Textbook Model -- A Modern Economic Model -- Empirical Research on Monetary Policy Stabilization -- Case Studies of Monetary Policy and Exchange Rate Fluctuations -- Appendix 6A A Modern Economic Model.
eBook
The global outlook for government debt over the next 25 years
Intro -- Contents -- Preface -- Acknowledgments -- The Global Outlook for Government Debt over the Next 25 Years: Implications for the Economy and Public Policy -- Overview -- Introduction -- Projected Paths of Government Debt -- The Burden of Debt and Fiscal Limits -- Paths to Safety -- Conclusion -- References -- About the Authors -- Index.
Book
The global outlook for government debt over the next 25 years : implications for the economy and public policy
This study addresses a fundamentally new feature of the contemporary world economy: the simultaneous buildup of very large public deficits and debt positions in virtually all of the advanced high-income countries. The recent global financial crisis sharply accelerated this fiscal deterioration, but it was already well underway in some countries, including the United States, where demographic prospects had posed extremely worrisome trajectories for a number of years. The book has three basic objectives. First, it projects the global fiscal outlook to 2035. Second, it asks whether the combination of deficits and debt in a large number of countries at the same time produces an impact on the world economy that is qualitatively different from the more traditional emergence of such problems in one or a few countries in any given period. Third, it analyzes the effects of the fiscal prospects on key economic variables including global interest rates and growth rates. The analysis finds that the current public debt profiles in most advanced economies will grow to dangerous and unsustainable levels over the next couple of decades unless major changes are made in projected spending and revenue levels. The authors conclude that the United States and Japan, in particular, need to start planning now for significant future budget cuts to minimize the risk of a crisis. Acting soon enables the adjustment to be phased in over an extended period, which cushions the inevitable adjustment costs, while avoiding the potentially enormous pressures that could be levied by markets if correction is delayed too long.
eBook
Determinants of distress in the UK owner-occupier and buy-to-let mortgage markets
The mortgage market has played a central role in the global financial crisis. One particularly pressing question surrounds the conditions under which mortgage borrowers enter distress, ie get into arrears or default. This paper develops a novel micro dataset from residential mortgage loans which UK banks and building societies have pre-positioned with the Bank of England for use as collateral in exchange for central bank funding. The dataset is used to investigate the determinants of borrower distress as a function of borrower and loan-level stock/flow characteristics over the loans' lifetime in the buy-to-let (BTL) and owner-occupier (OO) mortgage markets. We find systematic differences between these two markets, controlling for a range of loan and borrower characteristics as well as macro variables. Our main result shows that, adjusting for affordability, the loan-to-value ratio is reliably more important for borrower distress in the OO market than for distress in the BTL market, contradicting McCann's (2014) results.
Paper
Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market
We develop an agent-based model of the UK housing market to study the impact of macroprudential policy experiments on key housing market indicators. The heterogeneous nature of this model enables us to assess the effects of such experiments on the housing, rental and mortgage markets not only in the aggregate, but also at the level of individual households and sub-segments, such as first-time buyers, homeowners, buy-to-let investors, and renters. This approach can therefore offer a broad picture of the disaggregated effects of financial stability policies. The model is calibrated using a large selection of micro-data, including data from a leading UK real estate online search engine as well as loan-level regulatory data. With a series of comparative statics exercises, we investigate the impact of: i) a hard loan-to-value limit, and ii) a soft loan-to-income limit, allowing for a limited share of unconstrained new mortgages. We find that, first, these experiments tend to mitigate the house price cycle by reducing credit availability and therefore leverage. Second, an experiment targeting a specific risk measure may also affect other risk metrics, thus necessitating a careful calibration of the policy to achieve a given reduction in risk. Third, experiments targeting the owner-occupier housing market can spill over to the rental sector, as a compositional shift in home ownership from owner-occupiers to buy-to-let investors affects both the supply of and demand for rental properties.
Paper
Heterogeneous Effects and Spillovers of Macroprudential Policy in an Agent-Based Model of the UK Housing Market
We develop an agent-based model of the UK housing market to study the impact of macroprudential policy experiments on key housing market indicators. The heterogeneous nature of this model enables us to assess the effects of such experiments on the housing, rental and mortgage markets not only in the aggregate, but also at the level of individual households and sub-segments, such as first-time buyers, homeowners, buy-to-let investors, and renters. This approach can therefore offer a broad picture of the disaggregated effects of financial stability policies. The model is calibrated using a large selection of micro-data, including data from a leading UK real estate online search engine as well as loan-level regulatory data. With a series of comparative statics exercises, we investigate the impact of (i) a hard loan-to-value limit, and (ii) a soft loan-to-income limit, allowing for a limited share of unconstrained new mortgages. We find that, first, these experiments tend to mitigate the house price cycle by reducing credit availability and therefore leverage. Second, an experiment targeting a specific risk measure may also affect other risk metrics, thus necessitating a careful calibration of the policy to achieve a given reduction in risk. Third, experiments targeting the owner-occupier housing market can spill over to the rental sector, as a compositional shift in home ownership from owner-occupiers to buy-to-let investors affects both the supply of and demand for rental properties.
Paper
Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market
We develop an agent-based model of the UK housing market to study the impact of macroprudential policy experiments on key housing market indicators. The heterogeneous nature of this model enables us to assess the effects of such experiments on the housing, rental and mortgage markets not only in the aggregate, but also at the level of individual households and sub-segments, such as first-time buyers, homeowners, buy-to-let investors, and renters. This approach can therefore offer a broad picture of the disaggregated effects of financial stability policies. The model is calibrated using a large selection of micro-data, including data from a leading UK real estate online search engine as well as loan-level regulatory data. With a series of comparative statics exercises, we investigate the impact of (i) a hard loan-to-value limit, and (ii) a soft loan-to-income limit, allowing for a limited share of unconstrained new mortgages. We find that, first, these experiments tend to mitigate the house price cycle by reducing credit availability and therefore leverage. Second, an experiment targeting a specific risk measure may also affect other risk metrics, thus necessitating a careful calibration of the policy to achieve a given reduction in risk. Third, experiments targeting the owner-occupier housing market can spill over to the rental sector, as a compositional shift in home ownership from owner-occupiers to buy-to-let investors affects both the supply of and demand for rental properties.
Paper