Influences of Global Interest rates and Liquidity Changes on Housing Price Cycles: Focusing on the Influence of Federal Fund Rate Changes on Major Countries

2021 ◽  
Vol 27 (4) ◽  
pp. 89-118
Author(s):  
Jae Yoon Kim ◽  
Chang Gyu Choi
Keyword(s):  
Interest Rates ◽  
Housing Price ◽  
Federal Fund ◽  
Federal Fund Rate ◽  
Fund Rate

scholarly journals Impact of FOMC announcement on stock price index in Southeast Asian countries

2017 ◽  
Vol 7 (3) ◽  
pp. 370-386
Author(s):  
Trung Hoang Bao ◽  
Cesario Mateus
Keyword(s):  
Monetary Policy ◽  
Stock Markets ◽  
Southeast Asian ◽  
Federal Fund ◽  
Content Type ◽  
Federal Fund Rate ◽  
The Us ◽  
The Impact ◽  
Future Path ◽  
Fund Rate

Purpose The purpose of this paper is to examine the impact of Federal Open Market Committee (FOMC) announcements, which includes information about the targeted Federal fund rate and revision to the future path of monetary policy on Southeast Asian stock market performance. Design/methodology/approach This paper has used a sample of five national equity market indexes over the period 1997-2013 that covers 132 scheduled FOMC meetings. The authors have developed the model of Wongswan (2009) and Kontonikas et al. (2013) to quantify target surprise and path surprise. Findings The results first show that all the stock markets examined do respond to information in FOMC announcements. Second, the target Federal fund rate has more impact on Southeast Asian stocks performance than information about the future path of monetary policy does. Third, different Southeast Asian equity markets respond similarly to targeting the Federal fund rate, while the responses to monetary policy differ from each other. Fourth, the response of each country to the FOMC announcement is not statistically different in the two periods of financial crisis. Research limitations/implications Southeast Asian financial markets are increasingly highly correlated to the US market. The main channel in which FOMC announcement has impact on Southeast Asian stock markets is through US price transmission. This is the case of foreign firms borrowing from the US market. Then, an increase in interest rate, which means that the cost of financing increases, will lower firm equity value. Originality/value The understanding of the response of the Southeast Asian stock markets to target surprise and path surprise, and the impact of each surprise in different time periods, would be important to investors and encourage further discussion amongst academics in Southeast Asia, where stock markets have been emerging in recent years.

The Legacy of Economic Recession in Terms of Over-Indebtedness: A Framework and Review of the Evidence

2020 ◽  
Vol 20 (1) ◽  
pp. 111-124
Author(s):  
Heikki Hiilamo
Keyword(s):  
Interest Rates ◽  
Economic Crisis ◽  
Debt Crisis ◽  
Housing Price ◽  
Economic Recession ◽  
Oecd Countries ◽  
Mortgage Lending ◽  
Global Economic Crisis ◽  
Run Up ◽  
The Uk

With the expansion of credit, low interest rates and overly optimistic expectations about future economic and housing price developments, mortgage lending soared in most OECD countries in the run-up to the 2008 global economic crisis. The crisis revealed the hidden epidemic of over-indebtedness, which continues to overshadow the lives of millions in rich countries. In the wake of the global economic crisis, the household debt crisis led to worsening economic conditions and put pressure on government finances, which caused further income shocks in the form of austerity measures such as social welfare cuts and higher taxes. This article is based on a scoping review aimed at summarising and reflecting on the available literature. It analyses the effects of over-indebtedness on individuals and societies across six OECD countries: Finland, Germany, the Netherlands, Norway, the UK and the US.

scholarly journals Is there a bubble in the Swedish housing market?

2019 ◽  
Vol 12 (1) ◽  
pp. 32-61 ◽  
Author(s):  
Maher Asal
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
House Prices ◽  
Test Procedure ◽  
Unit Root Test ◽  
Housing Price ◽  
User Cost ◽  
Return To Equilibrium ◽  
Content Type ◽  
Factors Affecting

Purpose This paper aims to investigate the presence of a housing bubble using Swedish data from 1986Q1-2016Q4 by using various methods. Design/methodology/approach First, the authors use affordability indicators and asset-pricing approaches, including the price-to-income ratio, price-to-rent ratio and user cost, supplemented by a qualitative discussion of other factors affecting house prices. Second, the authors use cointegration techniques to compute the fundamental (or long-run) price, which is then compared with the actual price to test the degree of Sweden’s housing price bubble during the studied period. Third, they apply the univariate right-tailed unit root test procedure to capture bursting bubbles and to date-stamp bubbles. Findings The authors find evidence for rational housing bubbles with explosive behavioral components beginning in 2004. These bubbles do not continuously diverge but instead periodically revert to their fundamental value. However, the deviation is persistent, and without any policy correction, it takes decades for real house prices to return to equilibrium. Originality/value The policy implication is that monetary policy designed to contain mortgage demand and thereby prevent burst episodes in the housing market must address external imbalances, as revealed in real exchange rate undervaluation. It is unlikely that current policies will stop the rise of house prices, as the growth of mortgage credit, improvement in Sweden’s international competitiveness and the path of interest rates are much more important factors.

scholarly journals THE SPECIAL EFFECT OF INTEREST RATE CUTS ON HOUSING PRICES

2021 ◽  
Vol 22 (3) ◽  
pp. 776-798
Author(s):  
Che-Chun Lin ◽  
I-Chun Tsai
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Structural Changes ◽  
Housing Prices ◽  
Housing Price ◽  
Theoretical Models ◽  
Rate Variation ◽  
Bubble Behavior ◽  
Special Effect ◽  
Home Prices

This study uses theoretical models and empirical research to explain that interest rates affect the structure of housing price formation and correction rather than affect the price alone. In particular, when interest rates are substantially reduced, the correction of housing prices toward fundamentals is absent; in other words, a housing bubble is likely to occur. This study first illustrates a model for explaining home price behavior. Data from the Case-Shiller U.S. National Home Price Index between January 1975 and August 2020 are adopted to observe the behavior of home prices. The empirical results show that the correction and bubble behavior of U.S. home prices have exhibited significant structural changes. Variation in money supply fails to explain the structural changes, however, interest rate variation can significantly affect the structural changes. According to the results, when interest rates rise or fall slightly, the correction of home prices toward the equilibrium value is significant. However, when interest rates fall substantially, the bubble behavior of home prices is significant. For governments that adopt low interest rates to revitalize the economy, the results of this study provide special reference values. Governments should provide additional intervention in housing markets when an extremely low interest rate exists.

scholarly journals The influence of a mortgage interest and capital deduction policy on house prices

2020 ◽  
Vol 38 (6) ◽  
pp. 563-577
Author(s):  
Wouter Vangeel ◽  
Laurens Defau ◽  
Lieven De Moor
Keyword(s):  
Interest Rates ◽  
Fixed Effects ◽  
Design Methodology ◽  
House Prices ◽  
Housing Prices ◽  
Housing Price ◽  
Content Type ◽  
Mortgage Interest ◽  
Price Determinants ◽  
Fixed Effects Regression

PurposeSince 2005, Belgian housing prices have strongly increased. As the timing coincides with the implementation of a new fiscal package in order to stimulate homeownership, our study attempts to provide an understanding whether the mortgage interest and capital deduction (MICPD) policy has had the side-effect of increasing housing prices while, at the same time, controlling for key housing price determinants.Design/methodology/approachA fixed-effects regression model is used on a panel dataset of the three Belgian regions over the period 1995–2015.FindingsEstimations are carried out separately for different house types, being useful as our empirical analysis ascertains a significant price-increasing effect for ordinary houses and apartments but a significant price-reducing effect for villas. In addition, we find, among other things, that interest rates' influence has been less substantial than commonly thought.Originality/valueThese results are relevant for all governments willing to stimulate homeownership through fiscal stimuli.

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