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International Monetary Fund. European Dept.

The Great Divergence: Regional House Prices in Denmark 1 Recent house price developments in Denmark have been characterized by a growing divergence between different parts of the country, with big cities such as Copenhagen and environs experiencing much more rapid price increases than other parts. This paper examines the factors contributing to this price divergence. In an empirical analysis, municipal-level data are used to estimate the equilibrium house price level for each Danish city—the level explained by economic fundamentals—and to infer the extent

Andrea Deghi, Mr. Fabio M Natalucci, and Mahvash S Qureshi
After dropping sharply in the early phases of the COVID-19 pandemic, commercial real estate prices are on the mend. However, the initial price decline, as well as the pace of recovery, vary widely across regions and different segments of the commercial real estate market. This note analyzes the factors that explain this divergence using city-level data from major advanced and emerging market economies. The findings show that pandemic-specific factors such as the stringency of containment measures and the spread of the virus are strongly associated with a decline in prices, while fiscal support and easy financial conditions maintained by central banks have helped to cushion the shock. A higher vaccination rate has aided the recovery of the sector, especially in the retail segment. Structural changes in private behavior such as the trend toward teleworking and e-commerce have also had an impact on commercial property prices in some segments. The outlook of the sector across regions thus remains closely tied to the trajectory of the pandemic and broader macroeconomic recovery, financial market conditions, and the pace of structural shifts in the demand for specific property types. In an environment of tightening financial conditions and a slowdown in economic activity, continued vigilance is warranted on the part of financial supervisors to minimize financial stability risks stemming from potential adverse shocks to the sector.
Carlos Góes and Mr. Troy D Matheson

holds. That is, larger share of non-tradable prices have explosive processes, and amongst those processes that are not explosive, non-tradable prices tend to have higher autoregressive parameters. Figure 2: Distribution of ADF coefficients (distribution function of product-city pairs ADF coefficients, in percent) Figure 3 shows how the persistence of price level deviations varies across cities. Tradable price divergences range from a maximum of 17 months in Belo Horizonte to a minimum of 10.8 months in Curitiba. By contrast, non-tradable price

Carlos Góes and Mr. Troy D Matheson
This paper presents the first assessment domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law of one price holds for most tradable products and, not surprisingly, non-tradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.

the accumulation of cost and price divergences among ERM countries. In this interpretation, one could argue that the threat to the system is largely over and the way is open to a return to narrow bands: exchange rates now appear to be more in line with fundamentals, cyclical divergences are narrowing and German interest rates are on their way down to levels that are more in tune with macroeconomic conditions in the ERM as a whole. Care would have to be taken not to allow a significant accumulation of cost and price divergences in the future, but the continued

International Monetary Fund. European Dept.

sensitive to abrupt house price corrections than the others, thus providing arguments in favor of region-specific rather than nation-wide policies to mitigate financial vulnerabilities. 4. In this analysis we estimate the extent to which the recent regional house price divergence in Norway can be explained by fundamental factors . Section B looks at the recent trends in regional house prices, demand and supply factors more in detail. Section C describes our econometric approach to estimating regional equilibrium house prices, and provides main findings on the extent of

Mr. Tobias Adrian and Bradley Jones

limited analysis of whether liquidity risk in this market segment could have broader (systemic) implications. In a review of the role of authorized participants as both dealers and arbitrageurs in fixed-income ETFs that can be prone to liquidity mismatches, Pan and Zeng (2017) suggest authorized participants may strategically use ETF creations and redemptions to unwind their bond inventory imbalances in periods of liquidity stress. While these actions could prolong or even worsen NAV-based pricing divergences, the implications were tied more to market efficiency and

International Monetary Fund

, Collective action clauses: how do they weigh on sovereigns? Banca d’Italia, Working Paper No. 897, January 2013. Bradley, Michael, Gulati, Mitu, Collective Action Clauses for the Eurozone, Review of Finance, 2013, pp. 1-58. 15 Dates were chosen when 5 year CDS spreads for the relevant countries were at a minimum and maximum in the period of 2014-2017. 16 If investors expect higher recoveries on bonds without CACs, pricing divergence might be greater when the probability of default rises. 17 As discussed in the 2014, 2015 and 2016 papers, New York court