The Unassuming Economist

This edition includes: (1) our quarterly update of the Global House Price Index; (2) a discussion of some of the factors associated with the cross-country variation in house prices in recent years; and (3) housing sector developments described in IMF country documents over the past quarter.

The Global House Price Index

Our global house price index shows that, on average, prices are almost back up to where they were at the start of 2007 (Figure 1).

Figure 1

There is a fair bit of cross-country variation, as shown in Figure 2. While house prices have increased over the past year in most countries in our sample, the pace of increase varies quite a bit. And there are still a dozen or so countries where house prices have fallen over the past year, including Brazil, China and Russia.

Figure 2

The underlying data for these charts, as well as charts on credit growth and ratios of house prices to rents and incomes, are available from the IMF’s Global Housing Watch page: http://www.imf.org/external/research/housing/

Probing the Cross-Country Variation in House Prices

Both real house prices and real GDP growth in the 2007-2015 period were well below the boom experienced during 2000-2006. In the earlier period, global real GDP grew by over 4% per year while real house prices surged by about 9% on average. In the more recent period, these grew by just 2% and 1% per year, respectively. The simple correlation between real growth in house prices and GDP growth was very similar in the two periods at about 0.6. Continue reading here.

Papers on labor market issues, particularly on low-income countries, welcome for this special issue of Open Economies Review. See call for papers for details. Deadline for submission is Nov. 1, 2016.

A new IMF report discusses whether increases in the minimum wage in Japan will succeed in raising wage growth. It concludes: “In order to revamp growth and permanently exit deflation, Japan needs vigorous wage growth. The government has recognized this and announced substantial increases in the minimum wage and we empirically estimate its impact on average wages. Our econometric results suggest that the 3 percent hourly minimum wage increase could cause monthly wages to increase by about 1.5 percent on a year-on-year basis. The minimum wage policy should be complemented by other income policies—e.g. a “soft target” for wage growth and increases in public wages to create cost-push pressures in line with the inflation target.”

The United States has always been regarded as a highly mobile society. Previous work has left the impression that when adverse economic shocks hit their cities or regions, Americans are quickly able to move and find jobs elsewhere within the country. In a new paper, Mai Dao, Davide Furceri and I provide new evidence that questions this view. Our evidence shows that the ability to migrate is not as immediate as previously supposed; in the first year or two after an adverse shock to a state, the bulk of the burden is borne by an increase in the state unemployment and a decline in its labor force participation rate. We also find that while net mobility across states picks up during national recessions, this increase is driven more by a stronger population inflow into states that are doing better rather than stronger population outflow from states that are doing worse; the outflow occurs only toward the end of the recession. Overall, therefore, our results offer a less sanguine view of the ability of U.S. workers to shield themselves from the consequences of adverse shocks than is available in the literature. Here is a link to the paper and to an online appendix which is a wonk’s delight.

In a revised version of our 2013 paper, Larry Ball, Daniel Leigh and I still conclude: “It is rare to call a macroeconomic relationship a “law.” Yet we believe that Okun’s Law has earned its name. It is not as universal as the law of gravity (which has the same parameters in all advanced economies), but it is strong and stable by the standards of macroeconomics. Reports of deviations from the Law are often exaggerated. Okun’s Law is certainly more reliable than a typical macro relationship like the Phillips curve, which is constantly under repair as new anomalies arise in the data.” The paper provides estimates of Okun’s Law for 20 advanced economies, including the United States.