The housing market and the case for higher inflation targets in the US and the Eurozone

"No Risk of Housing Bust" In case you need some humor today, please consider No risk of housing bust: RBA Australia is not at danger of a collapse in the housing market, a top central banker says, again playing down concerns that Australia could suffer price falls like those seen in the United States or parts of Europe.

Charles Wyplosz, 3 December 2010The Eurozone crisis is not over. This column argues that the bailout of Greece and the €750 billion Special Purpose Vehicle in May 2010 have undermined the credibility of the Eurozone and threatened its existence.Full Article: The Eurozone slides into a vicious cycle

Simon Wren-Lewis:

Central banks in the rich world may have been too successful in subduing price pressures

Joshua Aizenman, Ilan Noy, 21 November 2012Are countries that have previously experienced banking crises less vulnerable to them in the future? This column argues that, in fact, previous crises might make future crises more likely. There isn’t much evidence of a learning process from past mistakes because the regulator often lags behind banking’s pace of innovation.

House prices - with respect to both levels and changes - differ widely across OECD countries. As a simple measure of relative rich or cheapness, the OECD calculates if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) are above their long-term averages, house prices are said to be overvalued, and vice-versa.

Yves here. Some readers are likely to recoil at the idea that more inflation might be a good thing. But the flip side is that economists are still fighting the war of the 1970s. The 1970s stagflation was the result of a specific set of conditions that look very remote now: a recent past of budget deficits when the economy was already strong leading to currency depreciation (Nixon going off the gold standard) which also hurt the Saudis (who lost out because oil was denominated in dollars), leading them to retaliate with oil price increases.