Will Oil Decline Lead to a House Price Bust?
The correlation between house prices and oil booms raises concerns because oil prices have fallen nearly as much from their 2014 peak (about 66 percent) as they did during the mid-1980s oil collapse (70 percent). That 1980s collapse preceded a long housing bust.
Monitoring money: should bond funds be added to M2?
One explanation for the unusually slow growth of M2 is that people shifted from bank deposits to higher yielding bond mutual funds. This possibility raises the question of whether the addition of bond funds to M2 would give policymakers a more accurate view of what is happening in the economy. To find the answer, I review why the money supply has been used as an indicator of nominal gross domestic product, explain why declines in bank competitiveness have led to episodes of missing money and describe bond funds. This discussion provides a basis for examining results from modeling M2 with and ...
Trade credit and credit rationing: a theoretical model
The other (commercial) real estate boom and bust: the effects of risk premia and regulatory capital arbitrage
The last decade?s boom and bust in U.S. commercial real estate (CRE) prices was at least as large as that in the housing market and also had a large effect on bank failures. Nevertheless, the role of CRE in the Great Recession has received little attention. This study estimates cohesive models of short-run and long-run movements in capitalization rates (rent-to-price-ratio) and risk premiums across the four major types of commercial properties. Results indicate that CRE price movements were mainly driven by sharp declines in required risk premia during the boom years, followed by sharp ...
What credit market indicators tell us
John Duca shows that interest rate spreads and loan surveys should be interpreted carefully when assessing the availability of credit and its impact on the economy. This is especially true of interest rate spread indicators, some of which reflect prepayment, liquidity, or default risk premiums that have different economic implications. It can be helpful to decompose spreads before drawing economic inferences from the structure of interest rates. Spreads between yields on non-top-grade private-sector bonds and Treasury bonds, in particular, have a large prepayment premium in addition to a ...
Would the addition of bond or equity funds make M2 a better indicator of nominal GDP?
John Duca assesses the possibility that adding bond mutual funds, equity mutual funds, or both to M2 would improve this monetary aggregate's ability to forecast nominal GDP growth. He finds that M2B (M2 plus bond funds) and M2+ (M2 plus bond and stock funds) are statistically significant in explaining past nominal GDP growth. Duca further shows that M2B and M2+ each yield better forecasts of nominal GDP growth since 1990 than does M2, but to a lesser extent when the federal funds rate and the ten-year Treasury note yield are included in his forecasting model. Because bond and equity mutual ...
Has long-run profitability risen in the 1990s
This article analyzes the recent rebound in nonfinancial corporate profitability, as measured by after-tax profits as a share of output. Virtually all the resurgence in corporate profitability during the 1990s reflects a cyclical increase in profits and a decline in net interest expense associated with deleveraging and lower interest rates. In this sense, it is not clear that a long lasting upward shift in the economic returns to capital has occurred, after accounting for short-run cyclical-related movements and for how deleveraging and lower interest rates have shifted capital payments away ...
How vulnerable are housing prices?