Measurement Matters for House Price Indices

• Author: Mick Silver
• Pages: 1-6

IMF

Volume 13, Number 4 December 2012

www.imf.org/researchbulletin

B U L L E T I N

1

Measurement Matters for House Price Indices

Mick Silver

A key element in understanding the global recession is the move-

ment in house price indices (HPIs). Methodological differences in

compiling HPIs plague and can undermine both within-country

and cross-country analysis of house price cycles and their deter-

minants. It is a difficult but important area of study. There are

empirical questions, such as, whether measurement differences

matter and, if so, how and to what extent, and second, how such differences

impact on some Fund analytical work including the modeling of house price infla-

tion and the measurement of global house price indices.

In the March 2010 issue of this Research Bulletin, Pra kash Loungani summa-

rized research, much of it IMF work, t hat compared the present housing cycle

with previous ones in OECD countr ies. e article highlighted t he broad features

of house price cycles and the depth of t he current trough; anchoring of house

prices; factors that ampli fy the response of house prices to fundamenta ls; country

coincidence of house price changes; and t he eectiveness of monetary policy to

Market Failures and Macroprudential Policy

Giovanni Favara and Lev Ratnovski

The purpose of macroprudential policy is to

reduce macroeconomic risks stemming from the

operations of the financial sector. However, its

economic rationale is not always well articu-

lated, and there is no consensus on optimal

instruments. This article argues that macro-

prudential policy can be analyzed through the prism of market failures that it

is supposed to address. The relevant market failures are risk externalities across

financial institutions and between finance and the real economy. The article then

discusses how these externalities can be corrected by existing policy tools.

e purpose of macroprudential p olicy is to reduce “systemic risk.” While

hard to dene formally, systemic ri sk is understood as “the risk of developments

that threaten the st ability of the nancial system a s a whole and consequently the

broader economy” (Bernanke, 200 9). e concept is meant to include the types of

nancial imba lances that led to the 2007–2008 nancia l crisis.

(continued on page 4)

In This Issue

1 Market Failures and

Macroprudential

Policy

1 Measurement Matters

for House Price

Indices

7 Q&A: Seven Questions on

Turning Points of the

Global Business Cycle

9 IMF Working Papers

13 Call for Papers

14 Staff Discussion

Notes

14 IMF Economic Review

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Research Summaries