JEL Code: O10

Katharina Knoll; Moritz Schularick; Thomas Michael Steger

Abstract

How have house prices evolved over the long-run? This paper presents annual house prices for 14 advanced economies since 1870. Based on extensive data collection, we show that real house prices stayed constant from the 19th to the mid-20th century, but rose strongly during the second half of the 20th century. Land prices, not replacement costs, are the key to understanding the trajectory of house prices. Rising land prices explain about 80 percent of the global house price boom that has taken place since World War II. Higher land values have pushed up wealth-to-income ratios in recent decades.

Keywords: house prices, land prices, neoclassical theory, transportation costs.

JEL Codes: N10, O10, R30, R40.

Erschienen in

American Economic Review, Volume 107, Issue 2, pp 331-353.

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Gunther Schnabl

Abstract

Japan experienced a boom-and-bust cycle in the real estate and stock markets almost 20 years earlier than Europe. Since the bursting of the Japanese bubble economy, the country has fallen into a deep recession and has experimented with crisis therapies in the form of unconventional monetary expansion, Keynesian fiscal stimulus, and recapitalization of financial institutions. Japan reached a low interest rate environment in the mid 1990s and has accumulated an exceptionally high level of public debt during more than two decades of economic stagnation. This paper compares the boom-and-bust cycles in Japan and Europe with respect to the reasons for excessive booms, the characteristics of the crises, and the (potential) effects of the crisis therapies. It is argued that in both Japan and Europe the consequences of expansionary monetary and fiscal policies include the hysteresis of a low-interest rate and high government debt environment, the erosion of the allocation and signaling functions of the interest rate, the gradual quasi-nationalization of financial institutions, as well as gradual real income losses. The economic policy implication for Europe and Japan is the timely exit from crisis therapies in the form of excessively expansionary monetary and fiscal policies.

Keywords: boom-and-bust, crisis, crisis therapies, economic stagnation, Europe, fiscal policies, interest rate, Japan, Keynesian fiscal stimulus, monetary expansion, Public debt, recapitalization of financial institutions, recession.

JEL Codes: E00, E60, E62, E66, F00, N00, O10.

Erschienen in

Asian Economic Papers, Volume 14, Issue 1, pp 124-150.

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