Hyun Song Shin Profile picture
Mar 11, 2022 19 tweets 7 min read Read on X
House prices boomed during the Covid recession - a big departure from past recessions

Where house prices go from here will be a key determinant of global activity

A thread from our latest #BIS_Bulletin on the topic

bis.org/publ/bisbull50…
First, it's worth stressing how unusual the Covid recession was in terms of house prices

Typically, economic downturns are followed by a moderate fall in house prices lasting about four quarters

This time round, there was not even a temporary dip

At the same time, the international co-movement of house prices has strengthened; more than 60% of house price movements can now be explained by a common global factor

Small open economies (both advanced and emerging) have been at the sharp end of this development
Special Covid-related factors (demand for space, strong liquidity asset positions of households) were partly responsible

But they combined with the more timeless factors such as easy financing conditions and reaching for yield in pushing up prices
But before sounding the alarm, it's worth noting that household and bank leverage are not flashing red as they did before the GFC

More accurately, they are not flashing red everywhere; there is a great deal of diversity in country experiences
Where do we go from here?

To get some answers, the #BIS_Bulletin undertakes two analytical exercises

First is a simulation based on past data using "random forest" machine-learning methods (don't ask - just read the piece) on what we might encounter depending on interest rates
Need to step away for a second; to be continued
Short-term declines in nominal house prices usually occur when GDP growth is negative and annual credit growth is below a 5–10% threshold
Higher interest rates need not trigger immediate house price declines if there is growth and rising incomes; debt service capacity matters
In a bid to study the impact of higher interest rates, the #BIS_Bulletin also looks at how the price-to-rent ratio might depend on mortgage rates and extrapolations of capital gains
The house price trajectory depends on assumptions about the path of interest rates; with no change in interest rates, the model predicts further appreciation before reversing to levels consistent historical user cost levels
With a gradual tightening of monetary policy of 100-200 bps, house price rises would be more muted, averting a boom-bust-style adjustment
Needless to say, how house prices evolve from here could have material implications for real activity going forward
For the median economy in our sample, a 10% increase in house prices boosts consumption growth in the following year by 2.2 percentage points

The effect is quite symmetric; a 10% decline lowers consumption growth by 2.2 ppts - a big hit
But it's worth stressing how diverse the international experience has been; small open economies (both advanced and emerging) have seen the largest housing booms with the greatest increases in household debt to historical highs
No doubt, the short-term impact of rising house prices has been a tailwind for growth

But we should be attuned to the risks of a reversal; in economies with high historical valuations and household debt, demand tailwinds could turn into headwinds
The macroprudential toolkit (loan-to-value caps, debt service-to-income caps) can help;

Monetary policy cannot neglect these risks, either
I leave you with a recap of the key takeaways of the #BIS_Bulletin

bis.org/publ/bisbull50…

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More from @HyunSongShin

Feb 28, 2023
BIS working paper introducing a new dataset on emerging market sovereign bonds; tracking the currency of denomination and the residence of investors

"Overcoming original sin: insights from a new dataset"

bis.org/publ/work1075.…
The new dataset gives a comprehensive picture of long-term government bonds, in line with the renewed focus on market/duration risk and the activity of non-bank financial intermediaries (NBFIs)

Follow the link to the dataset and compilation guide

bis.org/publ/work1075.…
There are also two accompanying data visualisation tools as easy-to-use dashboards

The first is a cross-section dashboard that shows how the currency denomination and non-resident investor share show up as a scatter... and how the chart evolves over time
bis.org/temp/panels/sm…
Read 6 tweets
Feb 18, 2023
Inspired by the debate between @nfergus and @adam_tooze on the current state of globalisation, I devoted my lecture at Columbia this week to take the pulse on global value chains:

"Global value chains under the shadow of Covid"

bis.org/speeches/sp230…
First, some background to set the scene

Real exports have grown but so has real GDP; we need to scale trade by the size of the economy, taking account of the different price indices (exports are goods heavy, GDP is services heavy as @BaldwinRE has argued eloquently)
The ratio of global real exports to global real GDP looks like this
Read 22 tweets
Dec 17, 2022
"There is a bitter irony in the turmoil currently gripping the crypto universe..."

My op-ed in the FT on the great unravelling of crypto

ft.com/content/76234c…
While we survey the wreckage and plot a course for the policy response to rein in the sector, we need to keep in mind some home truths

Crypto operates under the banner of decentralisation, but it is highly centralised in two crucial respects
First, many supposedly decentralised protocols turn out to be highly concentrated in governance and control

In most instances, crypto is decentralised in name only
Read 15 tweets
May 18, 2022
Will commodity prices tip the global economy into a 1970s-style stagflation?

Today's #BIS_Bulletin weighs the arguments and does some number crunching in search of an answer

A thread:
bis.org/publ/bisbull54…
Price rises have affected a broader range of commodities this time round than in the 1970s (for instance, see the yellow bar on industrial metals), but the size of the oil price shock has been much less than the 1973 shock
The inflationary backdrop was more menacing in 1973, with the global economy having lost the Bretton Wood nominal anchor a couple of years before; arguably, policy frameworks are much better now

On the other hand, the recent rise in inflation (in yellow) has been steep
Read 17 tweets
Apr 16, 2022
Central banks are picking up the pace in their work on digital currencies, moving from talk to actions

On 9-10 February, I chaired a meeting of deputy governors from 26 EM central banks

Here is a thread on the key lessons, just published

bis.org/publ/bppdf/bis…
In the run-up to the meeting, Mexico and India had announced their intention to launch their CBDCs and set the tone toward practical design choices

Here's a summary table from the report; numbers indicating extent of buy-in (1.0 means unanimity) Image
Competition and financial inclusion figured prominently

CBDCs are close cousins to instant payment systems that rest on digital ID and technical standards (APIs) that ensure interoperability

Brazil's Pix shows what's possible

Read 9 tweets
Apr 4, 2022
Crypto markets have found an outlet in centralized finance, or "DeFi"

Is DeFi the acceptable face of crypto?

Or can central bank digital currencies (CBDCs) do DeFi but without selling coins for speculation?

A thread on a panel I chaired this morning Image
One notable development has been the fragmentation of the blockchain universe, with #Ethereum giving up its dominance to newer chains

The chart below shows the percentage of collateral value locked in various chains; #Ethereum had close to 100%; now barely 50% Image
Such fragmentation suggests that network effects are not operating (or operating strongly); typically, businesses with network effects give rise to "winner takes tall"

Crypto markets are not an example of such markets
Read 17 tweets

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