The Housing Bubble: Is It Back?

In the last decade, there was an unprecedented run-up in house prices in most parts of the country. It was easy to recognize this run-up as a bubble since there was no remotely corresponding increase in rents, which for the most part just tracked inflation during this period. There was also no evidence of a shortage of housing supply. Housing starts were at near record highs from 2002 to 2005. In addition, the vacancy rate as reported by the Commerce Department was at near record highs through most of this period. With weak job and wage growth throughout most of this period, it was possible to recognize the run-up as a bubble even without knowing anything about the proliferation of bad loans in the mortgage market.The run-up in real house prices in the bubble years was almost completely reversed in the subsequent crash. While the first-time homebuyers' tax credit temporarily stopped and reversed the decline, house prices continued to fall until the spring of 2012. Since then, the market has recovered much of the lost ground. While it is still 20.1 percent below the bubble peaks of 2006 in real terms, inflation-adjusted house prices are now 37.7 percent above their level in 1996, before the beginnings of the bubble.While these prices may seem somewhat high, there is little basis for concern that the national market has again entered a bubble

Life After Debt in Puerto Rico: How Many More Lost Decades?

As Puerto Rico enters the legal debt restructuring process, this paper examines the future prospects for an economy that has had no growth over the last ten years — a lost decade. The facts indicate that the fiscal plan approved by Puerto Rico's Financial Oversight Board will not lead to an economic recovery in the foreseeable future and that another lost decade, or worse, is a much more likely outcome. Nor will the proposed restructuring satisfy creditors, who may then further impede economic recovery by taking legal action in an attempt to collect the full value of the bonds they hold. The paper also notes the recent historical and structural causes of the economy's decline, which led to the debt crisis; and that these, too, will need to be addressed if Puerto Rico is ever to have a sustainable recovery

Decade of Reform: Ecuador's Macroeconomic Policies, Institutional Changes, and Results

This paper looks at some of the institutional, policy, and regulatory changes enacted by the government of Ecuador, as well as overall economic and social indicators, over the decade since the Correa government took office

The French Economy, European Authorities, and the IMF: "Structural Reform" or Increasing Employment?

This paper looks at two competing views among economists and other observers, of how the French economy can overcome mass unemployment and have a more robust recovery. One view sees the unemployment and economic stagnation of the past decade as overwhelmingly structural. An alternative narrative, mostly from the Left but with some elements adopted by the far Right, sees the most immediate problem as one of inadequate demand in the economy.The authors find that France's unemployment rate, which has averaged 9.1 percent over the last decade, is not the product of "structural" barriers, but rather due to political choices made by the French government and European authorities. With inflation well below target, real borrowing costs at about zero, and a low current interest burden on the debt, it would make much more economic sense for the government -- and the eurozone as well -- to pursue an expansionary fiscal policy that increases employment

Did NAFTA Help Mexico? An Update After 23 Years

This paper compares the performance of the Mexican economy with that of the rest of the region and with its own economic performance, over the 23 years since NAFTA took effect, based on the available economic and social indicators. Among the results, it finds that Mexico ranks 15th out of 20 Latin American countries in growth of real GDP per person, the most basic economic measure of living standards; Mexico's poverty rate in 2014 was higher than the poverty rate of 1994; and real (inflation-adjusted) wages were almost the same in 2014 as in 1994. It also notes that if NAFTA had been successful in restoring Mexico's pre-1980 growth rate -- when developmentalist economic policies were the norm -- Mexico today would be a high-income country, with income per person comparable to Western European countries. If not for Mexico's long-term economic failure, including the 23 years since NAFTA, it is unlikely that immigration from Mexico would have become a major political issue in the United States, since relatively few Mexicans would seek to cross the border. This report updates a version released in February 2014

More Trouble Ahead: Puerto Rico's Impending Medicaid Crisis

Already in the midst of a fiscal crisis, Puerto Rico faces a long road to recovery from Hurricane Maria, a devastating storm it was ill-equipped to handle. The urgent efforts to address both the humanitarian needs and damage caused by the storm must also extend to solving the island's imminent Medicaid crisis, a preexisting condition that plagued Puerto Rico before the hurricane and that has been exacerbated by it.This paper examines the inadequate federal support received by Puerto Rico for its Medicaid program, and shows that ? barring immediate action from the US Congress ? the territory will not have sufficient funds to continue operating in 2018. While the cost of living is higher in Puerto Rico than the US average, health care services are the only item that is significantly less costly on the island.  Using 2016 Medicaid costs and looking at known migration patterns, we calculate what the federal government and states are likely to pay for providing Medicaid for Puerto Ricans moving to US states from 2018 to 2027 using two different migration scenarios. Under the more pessimistic scenario - a higher out-migration rate - more likely in the wake of Hurricane Maria, the cost for providing Medicaid to new Puerto Rican migrants stateside is $19.4 billion for the federal government and$12.3 billion among states, as compared to a total of $7.8 billion in Puerto Rico

The UK Economy at the Crossroads

Despite high levels of employment after eight and a half years of economic growth, the UK economy is facing some serious economic challenges: long-term rising inequality, real wages that are still below their 2009 peak, a collapse of productivity growth, and the worst level of regional inequality in the European Union. The unusual uncertainties surrounding Brexit also pose a serious threat that has been much discussed. However, the government's macroeconomic policies may also compound the risks associated with Brexit and make it more difficult to solve the economy's long-term problems. This paper looks at some of the details of the above challenges, with a focus on macroeconomic policy

The Pact for Mexico after Five Years: How Has It Fared?

The Pact for Mexico pledged to institute policies that would usher in a new era of growth and prosperity for Mexico, through the implementation of a series of structural reforms. The timeline for implementation of the proposed reforms extended to the second semester of 2018.This paper examines whether there has been progress toward the Pact's goals since it was signed; and whether any measures taken since then — including current economic policies — are likely to help Mexico break out of its long economic slump and forge a different path toward economic and social progress.Five years into the Pact for Mexico, it is clear from the available data that the Pact's promises to launch a new era of economic and social progress have not begun to materialize. The authors conclude that the country's persistent sluggish growth, poverty, and inequality are rooted in a set of important economic policy choices that have been made consistently for a long time

Similarities between Stock Market Reactions during the 2007 Financial Crisis and the 2020-2021 Coronavirus Pandemic. Correlation and Cointegration Analyses

In light of two recent global economic shocks, the global financial crisis of 2007/08 and the COVID-19 pandemic, this paper analyzes the relationships between global shocks and the national stock markets, looking to trends in volatility for the leading stock indices in six CEE countries, namely Austria, Bulgaria, Czech Republic, Hungary, Poland, and Romania, and indices from Germany (DAX) and the United States (S&P 500). The selected indices include the largest domestic companies in each country and make up most of the domestic market capitalization. For the analysis we used Garman-Klass (GK) volatility estimator, as the volatility was considered the most important proxy for market uncertainty. Then we used a simple correlation matrix to show initial tendencies. Also, the Johansen's test was used to determine if the indices are cointegrated and if this relationship has changed significantly in the non-crisis periods. We analyze Granger causality and the network approach as proposed by Diebold and Yilmaz (2015). The GK volatility results were individualized in three periods: 2007-2011 as a proxy for the global financial crisis and European sovereign debt; 2012-2019 representing a period of economic recovery and ultimately 2020-2021 representing the data points for the COVID-19 global pandemic. We find that particularly during periods of global distress, correlations between patterns of volatility for the stock market indices from these countries increase, and they exhibit stronger patterns of cointegration. These findings highlight the increasing connectivity in global financial markets and added challenges in crafting portfolio diversification strategies based on geography of stock holdings