The European Central Bank (ECB) has its hands tied because its monetary policy tools are not enough to deal with a house price boom, John Mullbauer, a professor at the University of Oxford, warns in Real Estate Booms and Busts. .: Implications for Monetary and Macroprudential Policy in Europe”, released as part of the ECB Forum, which continues this Wednesday in Sintra.
The study concludes that there is little room for the ECB to “go against the tide” due to the heterogeneous environment among its 19 member states and therefore calls for a change in the models applied by the Monetary Policy Council led by President Christine Lagarde.
For a specialist, there is a direct relationship between the transmission mechanisms of monetary policy and real estate purchase and rental prices, which, in turn, indicates signs of a country’s economic health.
The paper highlights that financial crises are often preceded by easing lending standards and a subsequent increase in lending, as well as an increase in loans, accompanied by a sharp increase in property prices.
And at the epicenter of the housing crisis is the banking crisis. “There is an important relationship between lending conditions and non-performing loans (non-performing loans, i.e. non-performing loans). NPLs are important components of credit cycles. [e consequentemente] banking crises,” explains John Mullbauer.
NPLs are a problem for banks for several reasons. On the one hand, the lending institution may lose some or all of the funds it has loaned and no longer have the expected income from collecting interest and fees.
“This is a good paper. It is necessary to know how to calibrate monetary policy in moments of calm and more agitated moments. [para o mercado]”, comments Giovanni Del’Ariccia during the forum.
The deputy director of the International Monetary Fund’s “research” department also insisted on distinguishing between what he classified as “good” and “bad” housing booms, citing growth or slowdown in employment in various sectors as a “good measure”. ., from construction to “communal services” between these two phenomena.
