The Unassuming Economist

The IMF’s latest economic report on Austria points out that:

“House price growth has been strong in recent years by international comparisons. The cumulative increase in the house price index over 2007–2015 was nearly 40 percent. To a large extent, this increase was driven by price dynamics in Vienna. The OeNB residential price index indicator, which assesses whether prices move in line with fundamental factors, points to an overvaluation of property prices of about 22 percent for Vienna, while prices in the rest of the country appear broadly in line with fundamentals. Price increases in Vienna have moderated lately, while picking up in the rest of the country (…). Low interest rates over recent years have loosened credit constraints and increased households’ borrowing capacity, putting upward pressure on housing demand. That said, prices have been kept high by supply side constraints and other idiosyncratic factors, especially in Vienna. Reviewing and relaxing local planning systems and regulations to facilitate the supply response to price movement can help contain the price rises close to the long run trend. Are the rising prices a problem? Financial stability risks seem contained. (…) Nonetheless, the authorities need to have the legal authority to expand the macroprudential toolkit with real estate-specific instruments when needed, to limit any potential risks to banks’ portfolios if real estate price bubbles were to emerge.”

This year’s award is shared by Allan Lichtman and Helmut Norpoth, two political scientists, who forecasted a Trump victory in the U.S. Presidential elections. Though I started out giving the award to people who had the courage to forecast recessions, I think it is good to broaden it to recognize courageous forecasts in other areas. Both Lichtman and Norpoth described the basis on which they were making their forecasts, which is an essential consideration in who gets the award. Outrageous forecasts made without providing some reasoning don’t qualify. The 2016 award went to Michael Shedlock (“Mish”) and the inaugural 2015 award to Lakshman Achuthan.

A new IMF report analyzes the lowering of the Gini coefficient in Uruguay during the last six years. Social policies and transfers have played a significant role in reducing poverty and inequality. While income dispersion has decreased across Latin America over the last decade, Uruguay stands out as the country with the largest drop in the Gini coefficient between 2009 and 2014, and to the lowest level. This reflects both government guidelines to bolster low wages, and increased redistribution through income taxes and transfers. However, looking ahead, the positive effects of further redistributive policies may be weighed against their fiscal costs and by a possible trade-off between income compression and incentives for labor supply and education and training. Work incentives among women can be strengthened further via reforms of parental leave, to reduce the remaining gender wage gap, and would diminish future pressures on public finances due to population ageing.