The Unassuming Economist

On cross-country:

• Prime Global Cities Index – Q3 2021 – Knight Frank

On the US:   

• The U.S. Housing and Mortgage Market: Risks and Resilience – FED
• Fed’s Bowman sees risks in housing market, flags inflation pressure – Reuters
• A different kind of housing bubble – FT
• ‘Zillow: the models underneath a housing hedge fund did not hold. Company deserves credit for pulling the plug quickly and retreating to its successful core – FT
• How Zillow got rocked by the housing market – Quartz
• Zillow’s home-buying debacle shows how hard it is to use AI to value real estate – CNN
• Single-Family Rental Firms Eye Zillow’s Housing Stock. Interest comes as Zillow gets ready to shut down its home-flipping business – Wall Street Journal
• A whodunnit on Zillow. Lessons for America’s housing market – The Economist
• Red-Hot Housing Market Drives Biggest Home-Equity Drawdown Since 2007. Homeowners are tapping into their properties’ equity to fund renovations, invest in stocks and more. – Wall Street Journal 
• Why Home Buyers Should Comparison Shop for Mortgage Rates—but Don’t. Even a small difference among interest-rate offerings can add up to noticeable savings – Wall Street Journal
• The Price of Living in ‘Paradise’ Is Higher Than Ever. Land and homes in Hawaii, never inexpensive, are more in demand in these days of remote working — as in remote from the U.S. mainland. – New York Times
• COVID, Race, and Housing Insecurity – Harvard University
• A surge in the US affordable housing supply is coming from people who can’t afford their homes – Quartz
• Will the Democrats’ ‘Build Back Better’ Bill Do Anything to Fix Zoning? Will the “Unlocking Possibilities” program be an effective way to spark zoning reforms—or just a subsidy to planning consultants? – Reason 
• Movie studios are good neighbors – if you like rising house prices – LSE
• How Data Is Reshaping Real Estate. Tech start-ups are offering new tools to help retailers and entertainment venues be more efficient by counting crowds, tracking foot traffic and following local shopping habits. – New York Times
• The Possible Impacts of Remote Work on Cities, Neighborhoods, and Households – Harvard Joint Center for Housing Studies
• Schumer scores billions for New York’s decaying public housing. The jockeying over the housing funds is one of many emerging sources of political tension surrounding President Joe Biden’s bill. – Politico
• Rent Control Backfires Again in St. Paul. Voters put on a 3% cap. You’ll never guess what developers did next. – Wall Street Journal

On China

• China struggles to regulate house prices despite glut of controls. Evergrande debt crisis prompts other developers to offer discounts, worrying authorities – FT
• Fed warns ailing China real estate sector poses risks to US economy. Central bank also monitoring volatility in meme stocks, per closely watched semi-annual report – FT, New York Times and CNBC
• Chinese developer Kaisa pleads for help as Fed warns of risks – Reuters
• Evergrande dodges default again; property sector debt concerns linger – Reuters
• China’s Plan to Manage Evergrande: Take It Apart, Slowly. Beijing is working on a controlled implosion of the real-estate giant, selling off some assets while limiting damage to home buyers and businesses – Wall Street Journal
• Kaisa says trying to solve liquidity issues, pleads for ‘more time and patience’ – Reuters
• Chinese developer Kaisa pleads for ‘patience’ as market strife spreads. Real estate groups including Evergrande rush to sell assets as contagion reaches higher-rated debt – FT
• As China’s Property Crisis Spreads, Beijing Says There’s Nothing to See. Global markets just weeks ago were fretting over the possible failure of Evergrande. Now the developer says the worst is over, even as other companies show signs of trouble. – New York Times
• China’s Economy Faces Risk of Yearslong Real-Estate Hangover. Booming market helped juice growth for more than a decade; without it, China could struggle to match previous pace, economists say – Wall Street Journal
• Deadline looms for Evergrande payment amid contagion fears – Al Jazeera
• Speculation nation: Can Xi Jinping’s property tax deflate China’s housing bubble? President faces an uphill battle to undo a system that has led to a bloated property sector – The Guardian
• China doesn’t have a housing bubble. Here’s why. China needs a large and vibrant real-estate sector to build enough housing in its big cities to meet the urbanisation demand in the next 10-20 years. Its high levels of savings and investment should also be seen as a blessing, especially given the costly necessary transition to clean energy – South China Morning Post
• China’s harsh medicine for property sector, local government debt could cause chaos, economists warn
• Beijing’s stricter regulation of local government borrowing and real estate developers increase the risks that some of them may run out of cash, analysts say. Defusing financial risk was one of three economic priorities set by Chinese President Xi Jinping four years ago, which has seen scrutiny of hidden local government debts  – South China Morning Post
• How does Affordable Housing Supply Affect Commercial Housing Prices: Crow out Supply or Divert Demand？- Journal of Finance and Economics
• China real estate firms may issue inter-bank market debt – Securities Times – Reuters
• Why China’s Real Estate Slowdown Isn’t Like Japan’s – Bloomberg 

On other countries:  

• [Australia] Widespread money laundering in property locking out Australians from owning homes, Senate told. Australia now ‘destination of choice’ for flow of illicit funds, anti-corruption expert says – The Guardian
• [Hong Kong] Hong Kong’s property barons set to benefit from affordable housing drive. City’s developers well-positioned to capitalise on Beijing’s efforts to promote social justice – FT
• [Ireland] Remote working linked to surge in house prices outside Dublin. Increased demand from those looking to relocate putting pressure on rural prices – The Irish Times
• [New Zealand] One of the World’s Hottest Real-Estate Markets Tries to Cool Down. New Zealand is pulling every lever to tame property prices without shaking its economy and crashing the market – Wall Street Journal  
• [United Kingdom] How does house price indexation affect the valuation of equity release mortgages? – Bank of England
• [United Kingdom] Return of super-rich to central London fuels house price surge. Property prices in city’s most expensive district rise by almost 7% as Covid restrictions ease – The Guardian
• [United Kingdom] Signs of a cooling housing market are too late for those hoping for better affordability. Talk has turned to an interest rate rise but the RBA says that’s still a way off – The Guardian
• [United Kingdom] Higher interest rates mean more expensive mortgages. But changes in the British housing market mute their effect – The Economist
• [United Kingdom] Property prices fall in upmarket London boroughs. Westminister and Kensington and Chelsea among those hit by pandemic-driven ‘race for space’ – FT
• [United Kingdom] Will UK house prices fall as interest rates rise? While rates are expected to rise over the next year, forecasts about price growth vary from a slowdown to an outright contraction – FT

How does economic growth depend upon the nature of bureaucracy and the effectiveness of institutions in a nation?

Historically and empirically speaking, the two are often, if not always very strongly correlated.  Besides, evidence gathered by historians and political scientists also fuels the idea that establishing an effective bureaucracy has been vital to the development of modern nation-states, particularly around functions such as national defence.

In their column for VoxEU, economists Tim Besley, Robin Burgess, Adnan Khan, Jonathan Old and Guo Xu present a review of the literature to broaden the discussion on the role that political institutions play in economic progress. They study parameters like the use of incentives in improving performance, selection criteria used in recruitment, relationships between the politicians and bureaucrats, and the role of non state actors like civil society organisations and NGOs in this column.

Finally, they suggest the following three methods to transition from a micro perspective to a much broader one to study this aspect. a transition from the study of microeconomic phenomena towards understanding larger, more complex mechanisms is an important next step to fully grasp how effective bureaucracies support development.

• “First, gathering economy-wide micro-data to evaluate system-wide reforms would enable researchers to better study structural transformations.
• Second, understanding how politics and the bureaucracy interact to generate state capacity has largely been ignored, but seems important given the unavoidable interactions and interdependencies between the two.
• Third, the examples of structural transformation in China and East Asia show that studying the relationship between the private sector and bureaucracy requires closer attention. Whether bureaucracies can innovate and adapt to future challenges will have important economic implications”.

Click here to read the full article.

New paper in Journal of Econometrics posted by Jacopo Cimadomo, Domenico Giannone, Michele Lenza, Francesca Monti & Andrej Sokold.

“Monitoring economic conditions in real time, or nowcasting, and Big Data analytics share some challenges, sometimes called the three “Vs”. Indeed, nowcasting is characterized by the use of a large number of time series (Volume), the complexity of the data covering various sectors of the economy, with different frequencies and precision and asynchronous release dates (Variety), and the need to incorporate new information continuously and in a timely manner (Velocity). In this paper, we explore three alternative routes to nowcasting with Bayesian Vector Autoregressive (BVAR) models and find that they can effectively handle the three Vs by producing, in real time, accurate probabilistic predictions of US economic activity and a meaningful narrative by means of scenario analysis.”

Continue reading here.

Source: VoxEU

In a recent paper, economists Choi and Levchenko (2021) study firm-level industrial policy measures in South Korea in the 1970s to examine their impact on the South Korean economy.

“South Korea’s experience with industrial policy is important to understand, as it is one of the ‘growth miracle’ economies of the post-war era, known for its rapid transformation from a commodity and light manufacturing producer to a heavy manufacturing powerhouse. It has been argued that industrial policy played a central role in this transformation, with the temporary subsidies having had a large and statistically significant effect on firm sales as long as 30 years after they ended.”

The authors conclude that South Korea’s activist industrial policy appears to have succeeded even after taking into account its fiscal costs and general equilibrium effects. However, they also add a word of caution with this encouragement, that today’s policymakers face the same challenge as policymakers in the past: to identify conditions – such as dynamic productivity effects or externalities – under which activist industrial policy is welfare-improving. 

Click here to read the full article.

From a VoxEU post by Avinash Persaud:

“John Williamson, one of the icons of international economics, passed away in April 2021. This column outlines some of his many and varied contributions to economic analysis and economic policymaking. In his work on exchange rates, the international monetary system and the challenges of economic crises, transition and development, he was the consummate problem-solver and understood any problem in the round of politics, economics and institutions. 

One of the icons of international economics, John Williamson, passed away in April of this year. I had the honour of being invited by the family to say a few words about John as a colleague at his Memorial on Sunday, 7 November 2021 at “Hemlock Grove”, Woodend, Audubon Naturalist Society, where John volunteered (he was a very keen birdwatcher). The following is what I said. 

In an age in which fundamentalism no longer slips between the shadows, but openly stalks the pastures of thought, and even the ramparts of Capitol Hill, John Williamson could be counted on to be the grown-up in the room.

He was seldom ‘black or white’ in his thinking. He revelled in the grey. In the nuance. He was neither ‘Dirigiste’ nor ‘Laissez-Faire’; neither fixed nor floating; neither full nor anti capital mobility. He made the case for the intermediate, to paraphrase one of his papers (Williamson 2007). His was a Golden Mean; between two vices or two corners if you may.¹

He did not set out to arrive at balance, for the sake of balance. He was more considered than that. He got there in active pursuit of the right solution to the right problem given the time and place. He was the consummate problem-solver and understood the problem in the round of politics, economics, and institutions.²

Which is why he cared so much about refining an idea, always trying to make it better, more suited to time and place. And which is why too, his contributions seem so varied. They are spread across the critical problems of the day, which did not always arrive in logical order.

When in the 1970s, Bretton Woods collapsed into the ‘Non-System’, as he called it, he wrote about the reform of the international monetary system and later its failure (Williamson 1977). And played more than a bit part too in the development of ideas at the time.³ He was a lanyard-carrying member of the Second Row Club – that group of senior officials who sat behind their ministers trying their best to advise and nudge them to greater ambition during the day, and drowning disappointments with laughter and drink in the evenings.⁴

When the newly floating exchange rates were stretching their muscles and exploring their limits in the 1980s and 1990s, he wrote about and developed new exchange rate arrangements (Miller and Williamson 1987). For instance, he and Fred Bergsten played a significant role in the ‘reference rate’ design of the Louvre Accord of February 1987 that tried to stabilise the dollar – an effort thwarted by the October 1987 stock market crash. 

When Asia arrived, the Berlin Wall tumbled, and Latin America found its footing, he wrote about transition, development, and, of course, the Washington consensus around such matters (Williamson 1990). And when commercial debt to middle-income countries emerged as an intractable problem, he wrote in praise of new instruments that could better share the risks between borrower and creditors, like GDP-linked bonds (Williamson 2017, Benford et al. 2018).

So far, I may have given the impression that his work was largely responsive, but in truth it was just as anticipatory. My recent proposal here on Vox for the regular issuance of $500 billion of Special Drawing Rights (SDRs) in order to support the huge investment required to halt climate change (Persaud 2021), in its design, owes a debt to John Williamson’s earlier Vox column on the desirability of regular issuance of SDRs (Williamson 2009).”

Continue reading here.