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Lower interest rates don’t necessarily improve housing affordability
The direct impact of higher mortgage rates on housing affordability has received much attention. We emphasize that housing affordability not only depends on mortgage rates but also on house prices, which have competing effects.
Limited Impact of Rising Energy Prices on U.S. Inflation, Inflation Expectations in 2020–23
Predictions of $100 per barrel oil during the coming winter have raised fears of persistently high inflation and rising inflation expectations for years to come. However, quantitative analysis suggests that these concerns have been overstated.
Inflation in Services Likely to Rise Further Despite Slowing Goods Prices
Given rising demand for in-person services, the slow pass-through of surging house prices to rent and owners’ equivalent rent (OER), and higher health care worker wages, services inflation is likely to increase further.
Working Paper
How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers
One of the most important channels through which monetary policy affects the real economy is changes in mortgage rates. This paper studies the effects of mortgage rate changes resulting from monetary policy shifts on homeowners’ spending, debt repayment and defaults. The Canadian institutional setting facilitates the design of identification strategies for causal inference, since the vast majority of mortgages in the country experience predetermined, periodic and automatic contract renewals with the mortgage rate reset based on the prevailing market rate. This allows us to exploit ...
Working Paper
A Quantitative Model of the Oil Tanker Market in the Arabian Gulf
Using a novel dataset, we develop a structural model of the Very Large Crude Carrier (VLCC) market between the Arabian Gulf and the Far East. We study how fluctuations in oil tanker rates, oil exports, shipowner profits, and bunker fuel prices are determined by shocks to the supply and demand for oil tankers, to the utilization of tankers, and to bunker fuel costs. Our analysis shows that time charter rates respond only slightly to fuel cost shocks. In response to higher fuel costs, voyage profits decline, as cost shocks are only partially passed on to round-trip voyage rates. Oil exports ...
Working Paper
Oil Price Shocks and Inflation
Despite growing interest in the impact of oil and other energy price shocks on inflation and inflation expectations, until recently this question has not received much attention. This survey not only presents empirical results for the U.S. economy, but expands the analysis to include other major economies. We find that only in the euro area and in the U.K. energy price shocks are associated with a material increase in core consumer prices. This helps explain the somewhat more persistent response of headline inflation in these countries than in the U.S. or Canada. Inflation is even less ...
Working Paper
Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices?
We study the efficacy of releases from the U.S. Strategic Petroleum Reserve (SPR) within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the SPR. Using novel identifying strategies and evaluation methods, we examine seven questions. First, how much have exogenous shocks to the SPR contributed to the variability in the real price of oil? Second, how much would a one-time exogenous reduction in the SPR lower the real price of oil? Third, are exogenous SPR releases partially or fully offset by increases ...
Surging House Prices Expected to Propel Rent Increases, Push Up Inflation
The inflation rates of rent and owners’ equivalent rent (OER)—the amount of rent equivalent to the cost of ownership—have declined sharply since the COVID-19 pandemic began in February 2020. However, we expect rent inflation and OER inflation to accelerate in the years to come.
Working Paper
Mortgage Borrowing and the Boom-Bust Cycle in Consumption and Residential Investment
This paper studies the transmission of the major shocks in the U.S. housing market in the 2000s to consumption and residential investment. Using geographically disaggregated data, I show that residential investment is more responsive to these shocks than consumption, as measured by elasticities and the implied contributions to GDP growth. I develop a structural life-cycle model featuring multiple types of housing investment to understand the large responses of residential investment. Consistent with the microdata, the model generates lumpy debt accumulation, lumpy housing investment and a ...
A New View of the Relationship Between Oil Prices, Gasoline Prices and Inflation Expectations
It has been considered self-evident until recently that oil prices drive inflation expectations, but new evidence calls into question this conclusion.