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Cover IMF Staff Country Reports
Nordic Regional Report: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper elaborates findings and discussions of 2013 Cluster Consultation Nordic Regional report. The countries have close economic and financial ties and face some common challenges and shared risks, such as large banking sectors and high household debt. The economic performance of the four continental Nordic economies (Denmark, Finland, Norway, and Sweden—Nordic-4) ranks among the advanced economic development circle. It is analyzed that the large Nordic banking systems support relatively high levels of private sector debt. House price developments in the Nordic-4 pose a risk to broader macroeconomic stability in the context of strained household balance sheets.
Keywords:
ISCR; CR; fund staff calculation; banking system; house price; bank assets; valuation gap; parent bank; asset price approach; bank capital buffer; banking sector; bank lending; fiscal policy; Housing prices; Commercial banks; Covered bonds; Housing; Disposable income; Global
Cover IMF Working Papers
Front Matter
Mr. Ashvin Ahuja, Lillian Cheung, Gaofeng Han, Mr. Nathan Porter, and Wenlang Zhang

Front Matter Page Asia and Pacific Department Authorized for distribution by Nigel Chalk Contents I. Introduction II. Salient Features of the Chinese Property Market III. How do we Assess Price Misalignment? Two Empirical Approaches A. The panel regression approach B. The asset pricing approach IV. Impact on China’s Real Economy and Banking Sector from Property Price Changes A. How will property price changes affect china’s domestic demand? B. How will property price changes affect China’s banking sector? C. How will property

Keywords:
WP; benchmark price; house price; property price; price misalignment
Cover IMF Working Papers
House Price Determinants in Selected Countries of the Former Soviet Union
Vahram Stepanyan, Mr. Tigran Poghosyan, and Aidyn Bibolov
This paper analyses the recent boom-bust cycle in the housing markets of selected Former Soviet Union (FSU) countries. The analysis is based on a newly constructed database on house prices in the FSU countries. Our estimations suggest that house price developments can largely be explained by the dynamics of fundamentals, such as GDP, remittances, and external financing. Overall, we find that deviations of house prices from their fundamentals have not been pronounced, suggesting that house price bubbles have not been formed in the FSU countries.
Keywords:
WP; error-correction term; GDP; House prices; pooled mean group estimator; the Former Soviet Union; housing price development; FSU country; house price elasticity; price development; house prices in the FSU country; mortgage rate; house price development; Housing prices; Remittances; Real estate prices; Housing; Inflation; Baltics
Cover IMF Working Papers
Are House Prices Rising Too Fast in China?
Mr. Ashvin Ahuja, Lillian Cheung, Gaofeng Han, Mr. Nathan Porter, and Wenlang Zhang
Sharp increase in house prices combined with the extraordinary Chinese lending growth during 2009 has led to concerns of an emerging real estate bubble. We find that, for China as a whole, the current levels of house prices do not seem significantly higher than would be justified by underlying fundamentals. However, there are signs of overvaluation in some cities’ mass-market and luxury segments. Unlike advanced economies before 2007-8, prices have tended to correct frequently in China.Given persistently low real interest rates, lack of alternative investment and mortgage-to-GDP trend, rapid property price growth in China has, and will continue to have,a structural driver.
Keywords:
WP; benchmark price; house price; property price; price misalignment
Cover IMF Working Papers
Risk Sharing and Financial Contagion in Asia: An Asset Price Perspective
Mr. Phurichai Rungcharoenkitkul
This paper assesses financial integration in Asia in terms of risk-sharing benefit versus financial-contagion cost. We construct a new measure of risk sharing based on a term structure model, which allows identification of realized stochastic discount factors. Risk sharing is low in Asia, and varies across time and countries, whereas contagion risks are more significant intra-regionally, and relatively stable over the past decade. An overall tradeoff exists between risk sharing and contagion, but the terms of tradeoffs vary across countries, depending on relative economic fluctuations and inflation differentials. Asia, therefore, can potentially enhance risk sharing without raising contagion risk.
Keywords:
WP; Risk sharing; financial crisis; financial integration; contagion; affine term structure model; contagion risk; time series; standard deviation; risks low; spillover risk; market rule; benefit perspective; Financial contagion; Financial sector development; Asset prices; Stock markets; Asia and Pacific; Global
Cover IMF Working Papers
Does Good Financial Performance Mean Good Financial Intermediation in China?
Mr. Tarhan Feyzioglu
Chinese banks generate large profits and have relatively low nonperforming loans. However, good financial performance does not, in itself, guarantee that banks efficiently intermediate the economy's financial resources. This paper first examines how efficient Chinese banks are in financial intermediation, using the stochastic production frontier approach. Quality of loans are controlled for by focusing on net loans and correcting for nonperforming loans; Hong Kong SAR banks are included in the sample to have a more universally representative production frontier. The results suggest that Chinese banks indeed became more efficient during 2001-07. Nevertheless, a majority of banks remain quite inefficient, including several large state owned banks and many city banks. Large banks tend to hoard deposits and operate beyond the point of diminishing returns to scale, while smaller banks operate at increasing returns to scale. This suggests that reallocating deposits from large to smaller banks would increase overall efficiency. The paper finds no significant correlation between bank efficiency and profitability. Possible factors leading to large profits in the banking system, despite wide-spread inefficiencies, are low deposit interest rates, large interest margins, and high market concentration. Moving to indirect monetary policy and deepening capital markets to channel some of the savings to productive investment would help improve the efficiency of financial intermediation. This may spur loan growth, however, which will need to be handled with monetary policy and regulatory/supervisory tools.
Keywords:
WP; bank; loan; net; production function
Cover IMF Working Papers
What Goes Up Must Come Down? House Price Dynamics in the United States
Mr. Vladimir Klyuev
This paper estimates the evolution of equilibrium real home prices in the United States and finds that despite recent declines, single-family homes remained 8 to 20 percent overvalued as of the first quarter of 2008. In the short run, the gap between actual and equilibrium prices does not exert powerful influence over price dynamics. Instead, that dynamics is driven by the inventory-to-sales ratio and by foreclosure starts in a highly inertial relationship. Taken together, this implies that price declines are likely to continue, including past the point where overvaluation is eliminated. The paper also finds that from the early 1990s onwards changes in regional home prices have been more synchronized than before, and that the recent movements in the average price index have reflected a nationwide housing boom, followed by a nationwide housing bust.
Keywords:
WP; home price; equilibrium price; price index; overvaluation; price
Cover IMF Staff Country Reports
Spain: Financial Sector Assessment Program: Technical Note: Housing Prices, Household Debt, and Financial Stability
International Monetary Fund
This report reviews the macroeconomic determinants of the rapid growth in the Spanish housing market, including various policy elements. It examines the vulnerabilities of households' finances as a result of the rapid growth of housing prices and mortgage debt. It also describes the Spanish mortgage market and assesses the resilience of the financial sector to a possible adjustment in the housing and mortgage markets. It presents a market-based indicator to show the market views on the quality of the mortgage portfolio and also provides recommendations.
Keywords:
ISCR; CR; mortgage contract; asset swap; mortgage lending; rate mortgage; fall scenario; mortgage portfolio; credit institution; housing price; Mortgages; Housing prices; Credit; Housing; Loans