Social Housing Policy in a Segmented Housing Market: Indirect Effects on Markets and Individuals

This paper analyses indirect effects of social housing policy (SHP) in a segmented housing market. A two segment-housing ladder, where equity determines up trading, shows how SHP-measures targeting either housing supply or housing demand impact market developments and individual housing careers. When addressing market developments the paper considers house prices and housing supply. Analysing housing careers we highlights the ability of households indirectly exposed to SHP to trade up a housing ladder. The segmented housing market model contains both multipliers, along the lines of the Balanced Budget Multiplier of Haavelmo (1945), and non-neutral price effects across segments. These features allow some novel results when discussing indirect effects of SHP. Relating SHP to up-trading and a housing ladder where households simultaneously act as buyers and sellers, we first of all show the effect of SHP on the supply of used homes, an important part of housing supply. Second, this framework makes us able to position crowding-out across market segments. Both features are novel in the SHP-discussion. The paper also shows how SHP might create negative indirect effects on the up-trading ability of households that do not benefit from SHP measures.publishedVersio

Management of Exchange Rate Risk In SMEs: Reflections On Exchange Rate Pass-through and Hedging of Currency Risk

Exchange rate fluctuations represent a challenge for the internationalization of all firms, both big and small. This paper reflects on two aspects of the exchange rate challenge - (i) the exchange rate pass-through and (ii) hedging of exchange rate risk and how SMEs manage these two aspects of exchange rate risk. The exchange rate challenges that SMEs face might differ from the risks larger firms are exposed to, and their management of the risks might vary. In family-owned SMEs, longer planning horizons than listed firms might imply a weaker exchange rate pass-through, while smaller financial buffers might pull pass-through rules in the opposite direction for the same SMEs. When considering hedging, the paper argues for both operational hedging and external hedging to represent a management challenge for SMEs, pushing the exchange rate risk towards the forefront of the factors hampering internationalization among SMEs.publishedVersio

The optimal LTV-ratio, mortgage market variability and monetary policy regimes: A demand side perspective

The purpose of this paper is twofold: First, it derives the optimal LTV-ratio for a mortgagor that maximizes the return to home equity when considering the capital structure of housing investment. Second, it analyses the demand side contribution to mortgage market variability across monetary policy regimes. The paper endogenises both the relation between the loan-tovalue (LTV) ratio and the mortgage rate and the relation between LTV and the rate of appreciation. When analyzing LTV-variance and the demand side contribution to mortgage market variability we consider three stylized regimes. The paper finds an intuitive ranking of LTV-ratios across regimes, where the optimal LTV-ratio peaks during a housing boom. The demand side contribution to market variability is however at its highest during “normal” market conditions in housing and mortgage markets when monetary policy ignores asset inflation. Hence, there is a potentially humped shaped relation between the risk exposure of individual mortgagors and the demand side contribution to mortgage market variability.acceptedVersio

A comment on the optimal structure of export processing free zones

This article comments on the industrial structure of developing countries’ export processing free zones (EPZ). As developing countries are exposed to irrecoverable entry costs in international markets, the relationship between export supply and exchange rates has been shown to be persistent. In addition to hampering entry, the market entry costs thus complicate export supply responses. As the form of persistence varies between industry structures, market entry costs might also affect EPZ optimal industry structure. In order to create successful export promotion programs through EPZ, these differences should be taken into account. This paper comments on how different export industry structures create export revenues and backward linkages, two of the main objectives of EPZ

Are the traditional trade-exchange rate theorems relevant for developing countries facing entry costs in international markets?

This paper investigates the relevance of traditional trade-exchange rate theo- rem for developing countries facing sunk entry costs in international markets. First the theorems analysing pricing of tradable goods and the trade balance dynamics following exchange rate shocks are accounted for. Second the sunk cost hysteresis model of foreign trade is described, including the possibility for hysteresis both at the microeconomic and at the macroeconomic level. Third the implications of sunk cost hysteresis for the predictions of the traditional trade-exchange rate theorems are discussed, focusing on both pricing of trad- able goods as well as short and long run trade balance dynamics following exchange rate shocks. The paper argues that the sunk cost model provides a microeconomic basis for trade dynamics that allows for non-linearities and regime switches, something often seen in empirical anlysis. The predictions of structural adjustment programs are however drawn from the traditional theorems, lacking the possibility for non-linearity. The sunk cost model is argued to push both pricing rules and trade balance dynamics closer towards the empirical record, mainly by allowing for a state-dependent relationship between exchange rates and foreign trade. When it comes to policy implica- tions the paper argues in favour of context speci.c policy interventions and against the one size .ts all approach of structural adjustment programs

Mortgage Supply, LTV and Risk Pricing

This paper focuses on mortgage supply and its contribution to the loan-to-value (LTV)-ratio. The paper starts by finding the optimal LTV-ratio for a profit-maximising mortgagee that supply mortgages using housing as collateral. As the LTV-ratio represents the mortgagee's risk exposure, the optimal LTV-ratio is one where the mortgagee is paid for its actual risk exposure. Thinking in terms of social welfare, the profit-maximising LTV-ratio is also optimal for society in our supply side framework. When including additional characteristics from the supply side of the mortgage market, the paper shows how the profit-maximising LTV-ratio varies according to moral hazard, risk pricing, funding structures, lending volumes and collateral values. The supply side characteristics create a wedge between the profit-maximising LTV-ratio and the LTV-ratio optimal for society. The model helps understand the role of mortgage supply in the period preceding the financial crisis, where LTV-ratios increased considerably. Consequently, it also allows for straightforward arguments regarding macro-prudential policy. Highlighting risk exposure, the paper continues by analysing the risk pricing response to falling house prices and an LTV-ratio that exceeds the LTV-ratio at origination. The paper finds a kinked-relation between the mortgage rate and the LTV-ratio ex post, separating risk pricing ex ante and ex post.acceptedVersio

"Path-dependence"effekter i kredittilbudet

Artikkelen illustrerer hvordan kredittilbudet kan være gjenstand for ”path-dependence” (hysterese) effekter. ”Path-dependence”-tilnærmingen som benyttes er basert på en systemteoretisk aggregering med basis i magnetismen. En aggregering over ikke-lineære mikrorelasjoner gir opphav til en kontinuerlig makroøkonomisk hysterese loop for tilbudet av kreditt. Den ikke-lineære mikrorelasjonen utledes fra en antagelse om asymmetrisk informasjon i kredittmarkedet. Herfra fokuserer modellen på forskjellen mellom det å gi kreditt til etablerte kunder og det å gi kreditt til nye kunder, når etableringskostnaden er forskjellig fra over-våkningskostnaden. I tilfellet med en heterogen kundemasse vises det hvordan midlertidige endringer i bankenes lønnsomhet, for eksempel som følge av endringer i styringsrente, kan gi ”path-dependence” effekter i kredittilbudet. Med ”path-dependence” effekter i kredittilbudet er kredittkanalen ikke konstant over tid

Inflation in Latvia: how real is it?

This paper applies and extends the Scandinavian Model of Inflation for analysing determinants of inflation in Latvia. In recent years high inflation has been a persistent problem for advocates of Latvian participation in the euro collaboration. However, by allowing for transitional effects and separating the impact of nominal and real factors to inflation, where real factors are related to the structural shifts at the heart of transition economies, the recent inflation history becomes more understandable. The equilibrium effects accompanying real factors are shown to be the key component of overall inflation over the last 12 years, keeping non-structural inflation below the Maastricht criteria for most of the period. The real contribution to inflation provides Latvia with better prospects for future growth and higher standards of living, and should hence be less worrisome than the nominal contribution. Still, when it comes to compliance with the Maastricht criteria, no distinction is made between the two, complicating convergence for transition economie

Pris- og belåningsgevinster i husholdningenes boligformue

Siden 1992 har prisutviklingen i det norske boligmarkedet gitt betydelige formuesgevinster for boligeierne. Ettersom boliginvesteringer ofte lånefinansieres inkluderer formuesgevinsten potensielt også en belåningsgevinst. Belåningsgevinsten påvirkes både av boliginvesteringenes finansieringsstruktur og av boligmarkedets meravkastning. Høy meravkastning kan igjen påvirke valg av finansieringsstruktur ved boligkjøp. Slik kan kombinasjonen av høy boligprisvekst og lave boliglånsrenter som norsk økonomi har vært karakterisert av de siste årene være en viktig årsak til observerte endringer i boliglånsmarkede

A comment on mortgage procyclicality

This paper comments on mortgage procyclicality. A framework for credit constraints along the lines of Kiyotaki and Moore (1997) illustrates the potential regime shift in the credit risk assessments of mortgagees. Depending on the relationship between house price growth and the alternative rate of return the weight given to collateral and debt-servicing ability may vary according to the house price cycle as mortgagees engage in search-for-yield. Regime shifts might come about when house price appreciation is expected and risk assessments ignore debt-servicing ability, fuelled by competition for mortgage market shares and expansionary monetary policy. In the case of regime shifts increased house price growth might stimulate owner-occupation and LTV-ratios and induce mortgage procyclicalit