Predicting Downside Risks to House Prices and Macro-Financial Stability
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Summary:
This paper predicts downside risks to future real house price growth in 32 advanced and emerging market economies. Using a macro-model and predictive quantile regressions, we show that current house price overvaluation, excessive credit growth, and tighter financial conditions jointly forecast higher house-prices-at-risk up to three years ahead. House-prices-at-risk in turn predict future downside risks to economic growth and financial crises. We further investigate and propose policy solutions for preventing the identified risks. We find that tightening macroprudential policy is the most effective across both short and longer horizons, whereas a loosening of conventional monetary policy reduces short term downside risks only in advanced economies.
Series:
Working Paper No. 2020/011
Subject:
Financial markets Financial sector policy and analysis Money National accounts Prices
English
Publication Date:
January 17, 2020
ISBN/ISSN:
9781513525839/1018-5941
Stock No:
WPIEA2020011
Format:
Paper
Pages:
47
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