The Unassuming Economist

From a new paper by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor:

“This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but often ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.”

“This paper, perhaps for the first time, investigates the long history of asset returns for all the major categories of an economy’s investable wealth portfolio. Our investigation has confirmed many of the broad patterns that have occupied much research in economics and finance. The returns to risky assets, and risk premiums, have been high and stable over the past 150 years, and substantial diversification opportunities exist between risky asset classes, and across countries. Arguably the most surprising result of our study is that long run returns on housing and equity look remarkably similar. Yet while returns are comparable, residential real estate is less volatile on a national level, opening up new and interesting risk premium puzzles.”

On cross-country:

• Demographic Patterns of Reurbanisation and Housing in Metropolitan Regions in the US and Germany – Comparative Population Studies

On the US:

• A Shared Future: Data Democratization and Spatial Heterogeneity in the Housing Market – The Joint Center for Housing Studies
• LTV vs. LTI Constraints: When Did They Bind, and How Do They Interact? – University of Copenhagen
• Asymmetric effects of monetary policy in regional housing markets – Norges Bank
• Fannie and Freddie Continue in Limbo while Congress Looks for a Permanent Fix for the Housing Finance Market – Cato Institute
• Housing Disease and Public School Finances – NBER
• Investors Pile Into Suburban Rental Housing – Wall Street Journal

On other countries:

• [Singapore] Singapore authorities’ housing market warning may fall on deaf ears – Reuters

Photo by Aliis Sinisalu

Here are the top 17 posts of 2017:

1. Understanding Housing Supply: Views from Joseph Gyourko
2. Inequality of Opportunity, Inequality of Income, and Long-term Growth
3. Steve Malpezzi on Housing Markets
4. Housing: From Immobile and Illiquid to Mobile and Liquid
5. Decoupling of Emissions and GDP: Now you see it, now you don’t
6. Workshop on Forecasting Issues in Developing Economies
7. Housing Market in Africa: What We Do and Don’t Know
8. Housing Construction: The Current State, Policy Implication, and the Future
9. Stabilizing the System of Mortgage Finance in the United States
10. The State of Housing Market in Africa
11. Okun’s Law in Black and White
12. Property Tax in Africa
13. Cross-Country Spillovers of Fiscal Consolidations in the Euro Area
14. Construction Sector: The World’s Next Productivity Story?
15. Meeting EU Climate Pledges: Assessing Some Potential Policy Refinements
16. IMF Executive Board Discusses Macroeconomic Prospects and Challenges in LIDCs
17. Going for (Inclusive) Growth

The IMF’s latest report on Bolivia says that:

“The FSL [Financial Services Law] has resulted in rapid credit growth directed to specific sectors and social housing (…) Housing lending should be closely monitored and the authorities should finalize and publish a housing price index. (…) More market-oriented mechanisms to improve financial access should be considered and the housing loan portfolio monitored closely.”

My work with Davide Furceri, and Jonathan D. Ostry on The aggregate and disttributional effects of financial globalization: evidence from macro and sectoral data makes into the list of the research that shaped our world in 2017–put together by Dan Kopf of Quartz.

The aggregate and disttributional effects of financial globalization: evidence from macro and sectoral data (pdf) by Davide Furceri, Prakash Loungani and Jonathan D. Ostry

Main finding: Foreign finance has led to more inequality.

Nominating economist: Dani Rodrik, Harvard University

Specialization: Globalization and economic development

Why? “In brief, opening up to foreign finance (“financial globalization”) produces limited gains to aggregate output while generating significant increases in income inequality (a higher share of top incomes, a lower labor share, etc.). This paper’s conclusions are significant as the authors are researchers at the International Monetary Fund, which aggressively pushed for financial globalization until recently.”