Research
Demographic Change, House Prices, and the Real Rate
Abstract
Aging populations, driven by low fertility rates and increasing longevity, are a defining trend in most advanced economies. This demographic shift has far-reaching implications for asset prices and rates of return. This research investigates the relationship between demographic change and house prices. Using a quantitative life-cycle model calibrated to German microdata, I document the following: In line with past trends (1) demographic factors have contributed significantly to the long-term rise in housing prices of which much can be attributed to indirect general equilibrium effects of falling real rates. (2) Based on projected demographic trends, the model suggests that over the remainder of the 21st century declining populations and rising old-age dependency ratios place downward pressure on real house prices while (3) the composition of wealth shifts from capital to housing wealth mitigating the drop in real rates.
The Aggregate Demand Channel of Loan-to-Value Shocks
Abstract
This paper explores the aggregate and distributional effects of loan-to-value (LTV) tightening shocks, and their interaction with monetary policy, using a Heterogeneous-Agent New Keynesian (HANK) model. Households in the model face income risk, housing decisions, and collateral constraints. Stricter LTV limits affect the economy through aggregate demand effects, triggering a decline in aggregate consumption, house prices and inflation. Our results suggest that general equilibrium channels amplify the impact of LTV tightening, disproportionately affecting highly leveraged borrowers. Stronger monetary policy accommodation mitigates these effects, limiting the aggregate costs of stricter LTV regulations and their unequal burden across households. These findings highlight the importance of coordinated macroprudential and monetary policies.
Marrying Fiscal Rules & Investment: a Central Fiscal Capacity for Europe
Abstract
The European fiscal governance framework remains incomplete, leading to challenges in coordinating policy responses when facing economic shocks, and hampering the transmission of the single monetary policy. Moreover, high public debt burdens, coupled with pro-cyclical and chronically low public investment in the face of high investment needs hamper resilience across Member States. Several policy-makers, institutions and academics hence share the view that the establishment of a central fiscal capacity (CFC) would be an important step forward. Against this backdrop, we provide a framework to assess a proposal for a CFC in the euro area, aimed at stabilizing the business cycle, promoting sovereign debt sustainability as well as reducing the procyclicality of public investment. We develop a two-region DSGE model with a permanent CFC that allocates resources based on the relative output gap of the two regions while earmarking a fraction for public investment and imposing fiscal adjustment requirements for the high-debt region. We find that the introduction of the CFC can lead to enhanced business cycle stabilisation for both regions and significantly reduce the welfare cost of business cycle fluctuations. In response to an asymmetric shock, the CFC reduces procyclicality in public investment and tames the public debt burden. The analysis also explores modelling extensions to enable European bond issuance and implement an active supranational investment strategy to address investment needs by providing European Public Goods (EPGs).
MPC Heterogeneity and Monetary Policy Response of Mortgagors
Abstract
In this project we explore consumption behavior of households separated by tenure choice. For this purpose we add a housing decision to a standard incomplete markets lifecycle model and estimate the marginal propensity to consume (MPC) for renters, mortgagors and outright owners from model simulations. We document the bias of the common Blundell, Pistaferri and Preston (BPP) estimator using the true MPCs from the model and compare contemporaneous MPCs to dynamic consumption responses to income shocks.