IDEAS home Printed from https://ideas.repec.org/p/pke/wpaper/pkwp2005.html
   My bibliography  Save this paper

House prices, private debt and the macroeconomics of comparative political economy

Author

Listed:
  • James Wood
  • Engelbert Stockhammer

Abstract

Prevailing Comparative Political Economy accounts conceptualise the macroeconomic role of the financial sector in advanced economies either through the Varieties of Capitalism’s (VoC) emphasis on corporate finance or on the growth model perspective’s focus on household debt to support consumption. As neither framework accounts for the important macroeconomic influence of house prices and mortgage credit, we suggest the prevailing Comparative Political Economy accounts of the financial sector remain underdeveloped. Through an econometric evaluation of 18 advanced economies from 1980 to 2017, we demonstrate that household debt has larger and more statistically significant effects on GDP growth than business debt, and household debt volumes are largely determined by house price inflation. These results are consistent across the varieties of capitalism and advanced banking systems, suggesting the VoC’s focus on corporate finance is misplaced and the macroeconomic effects of household debt and house prices are underappreciated, especially in non-Anglo-American advanced economies.

Suggested Citation

  • James Wood & Engelbert Stockhammer, 2020. "House prices, private debt and the macroeconomics of comparative political economy," Working Papers PKWP2005, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2005
    as

    Download full text from publisher

    File URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2005.pdf
    File Function: First version, 2020
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alison Johnston & Aidan Regan, 2017. "Global Finance, Labor Politics, and the Political Economy of Housing Prices," Politics & Society, , vol. 45(3), pages 327-358, September.
    2. Iversen, Torben & Soskice, David, 2010. "Real Exchange Rates and Competitiveness: The Political Economy of Skill Formation, Wage Compression, and Electoral Systems," American Political Science Review, Cambridge University Press, vol. 104(3), pages 601-623, August.
    3. Ben Clift, 2012. "Comparative Capitalisms, Ideational Political Economy and French Post- Dirigiste Responses to the Global Financial Crisis," New Political Economy, Taylor & Francis Journals, vol. 17(5), pages 565-590, November.
    4. Dirk Bezemer, 2014. "Schumpeter might be right again: the functional differentiation of credit," Journal of Evolutionary Economics, Springer, vol. 24(5), pages 935-950, November.
    5. Thomas I. Palley, 2017. "Wage- vs. profit-led growth: the role of the distribution of wages in determining regime character," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(1), pages 49-61.
    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    7. Colin Hay, 2005. "Two Can Play at That Game … or Can They? Varieties of Capitalism, Varieties of Institutionalism," Palgrave Macmillan Books, in: David Coates (ed.), Varieties of Capitalism, Varieties of Approaches, chapter 6, pages 106-121, Palgrave Macmillan.
    8. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    9. Philip Arestis & Ana González, 2014. "Bank credit and the housing market in OECD countries," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(3), pages 467-490.
    10. Atif Mian & Amir Sufi & Emil Verner, 2017. "Household Debt and Business Cycles Worldwide," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1755-1817.
    11. Engelbert Stockhammer & Rafael Wildauer, 2016. "Debt-driven growth? Wealth, distribution and demand in OECD countries," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(6), pages 1609-1634.
    12. Aizenman, Joshua & Jinjarak, Yothin, 2014. "Real estate valuation, current account and credit growth patterns, before and after the 2008–9 crisis," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 249-270.
    13. Soon Ryoo, 2016. "Household debt and housing bubbles: a Minskian approach to boom-bust cycles," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 971-1006, December.
    14. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    15. Jakab, Zoltan & Kumhof, Michael, 2018. "Banks are not intermediaries of loanable funds — facts, theory and evidence," Bank of England working papers 761, Bank of England, revised 17 Jan 2020.
    16. Alvarez, R. Michael & Garrett, Geoffrey & Lange, Peter, 1991. "Government Partisanship, Labor Organization, and Macroeconomic Performance," American Political Science Review, Cambridge University Press, vol. 85(2), pages 539-556, June.
    17. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2016. "The great mortgaging: housing finance, crises and business cycles," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 31(85), pages 107-152.
    18. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
    19. Charles Goodhart & Boris Hofmann, 2008. "House prices, money, credit, and the macroeconomy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(1), pages 180-205, spring.
    20. Aidan Regan & Samuel Brazys, 2018. "Celtic Phoenix or Leprechaun Economics? The Politics of an FDI-led Growth Model in Europe," New Political Economy, Taylor & Francis Journals, vol. 23(2), pages 223-238, March.
    21. Cusack, Thomas & Iversen, Torben & Soskice, David, 2010. "Coevolution of Capitalism and Political Representation: The Choice of Electoral Systems," American Political Science Review, Cambridge University Press, vol. 104(2), pages 393-403, May.
    22. Colin Crouch & Wolfgang Streeck & Robert Boyer & Bruno Amable & Peter A. Hall & Grégory Jackson, 2005. "Dialogue on ‘Institutional complementarity and political economy'," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00310485, HAL.
    23. Herman Mark Schwartz & Bent Sofus Tranøy, 2019. "Thinking about Thinking about Comparative Political Economy: From Macro to Micro and Back," Politics & Society, , vol. 47(1), pages 23-54, March.
    24. Timothy Blackwell & Sebastian Kohl, 2019. "Historicizing housing typologies: beyond welfare state regimes and varieties of residential capitalism," Housing Studies, Taylor & Francis Journals, vol. 34(2), pages 298-318, February.
    25. Engelbert Stockhammer, 2016. "Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective," New Political Economy, Taylor & Francis Journals, vol. 21(4), pages 365-379, July.
    26. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    27. Ansell, Ben, 2014. "The Political Economy of Ownership: Housing Markets and the Welfare State," American Political Science Review, Cambridge University Press, vol. 108(2), pages 383-402, May.
    28. Erik Bengtsson & Magnus Ryner, 2015. "The (International) Political Economy of Falling Wage Shares: Situating Working-Class Agency," New Political Economy, Taylor & Francis Journals, vol. 20(3), pages 406-430, June.
    29. Stockhammer, Engelbert & Wildauer, Rafael, 2018. "Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries," Review of Behavioral Economics, now publishers, vol. 5(2), pages 85-121, September.
    30. Timothy Blackwell & Sebastian Kohl, 2018. "The origins of national housing finance systems: a comparative investigation into historical variations in mortgage finance regimes," Review of International Political Economy, Taylor & Francis Journals, vol. 25(1), pages 49-74, January.
    31. Mathias Drehmann & Claudio Borio & Kostas Tsatsaronis, 2012. "Characterising the financial cycle: don't lose sight of the medium term!," BIS Working Papers 380, Bank for International Settlements.
    32. Swank, Duane, 1992. "Politics and the Structural Dependence of the State in Democratic Capitalist Nations," American Political Science Review, Cambridge University Press, vol. 86(1), pages 38-54, March.
    33. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    34. Wildauer, Rafael & Stockhammer, Engelbert, 2018. "Expenditure cascades, low interest Rates, credit deregulation or property booms? Determinants of household debt in OECD countries," Greenwich Papers in Political Economy 20882, University of Greenwich, Greenwich Political Economy Research Centre.
    35. Roberto Dieci & Frank Westerhoff, 2012. "A simple model of a speculative housing market," Journal of Evolutionary Economics, Springer, vol. 22(2), pages 303-329, April.
    36. Sebastian Kohl, 2018. "More Mortgages, More Homes? The Effect of Housing Financialization on Homeownership in Historical Perspective," Politics & Society, , vol. 46(2), pages 177-203, June.
    37. Wojciech W. Charemza & Derek F. Deadman, 1997. "New Directions In Econometric Practice, Second Edition," Books, Edward Elgar Publishing, number 1139.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karsten Kohler & Benjamin Tippet & Engelbert Stockhammer, 2023. "House price cycles, housing systems, and growth models," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 20(3), pages 461-490, December.
    2. Giorgos Gouzoulis & Panagiotis (Takis) Iliopoulos & Giorgos Galanis, 2023. "Financialisation, Underemployment, & the Disconnected Greek Capitalism," Working Papers 112, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    3. Sebastian Kohl & Alexander Spielau, 2022. "Centring construction in the political economy of housing: variegated growth regimes after the Keynesian construction state," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(3), pages 465-490.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Engelbert Stockhammer & Christina Wolf, 2019. "Building blocks for the macroeconomics and political economy of housing," Japanese Economy, Taylor & Francis Journals, vol. 45(1-2), pages 43-67, April.
    2. Engelbert Stockhammer & Andre Novas Otero, 2023. "A tale of housing cycles and fiscal policy, not competitiveness. Growth drivers in Southern Europe," New Political Economy, Taylor & Francis Journals, vol. 28(3), pages 483-505, May.
    3. Eugenio Caverzasi & Daniele Tori, 2018. "The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis," Working Papers PKWP1815, Post Keynesian Economics Society (PKES).
    4. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    5. Hristov, Nikolay & Roth, Markus, 2022. "Uncertainty shocks and systemic-risk indicators," Journal of International Money and Finance, Elsevier, vol. 122(C).
    6. Nikolay Hristov & Markus Roth, 2019. "Uncertainty Shocks and Financial Crisis Indicators," CESifo Working Paper Series 7839, CESifo.
    7. Karsten Kohler & Engelbert Stockhammer, 2022. "Growing differently? Financial cycles, austerity, and competitiveness in growth models since the Global Financial Crisis," Review of International Political Economy, Taylor & Francis Journals, vol. 29(4), pages 1314-1341, July.
    8. Mark Setterfield & Y.K. Kim, 2024. "How financially fragile can households become? Household borrowing, the welfare state, and macroeconomic resilience," Review of Evolutionary Political Economy, Springer, vol. 5(1), pages 121-151, June.
    9. Engelbert Stockhammer & Giorgos Gouzoulis & Rob Calvert Jump, 2019. "Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010)," Working Papers PKWP1907, Post Keynesian Economics Society (PKES).
    10. Stockhammer, Engelbert & Wildauer, Rafael, 2018. "Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries," Review of Behavioral Economics, now publishers, vol. 5(2), pages 85-121, September.
    11. Bofinger, Peter & Geißendörfer, Lisa & Haas, Thomas & Mayer, Fabian, 2021. "Discovering the True Schumpeter - New Insights into the Finance and Growth Nexus," CEPR Discussion Papers 16851, C.E.P.R. Discussion Papers.
    12. Stockhammer, Engelbert & Calvert Jump, Robert & Kohler, Karsten & Cavallero, Julian, 2019. "Short and medium term financial-real cycles: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 81-96.
    13. Bashir Ahmad Joo & Simtiha Ishaq Mir, 2024. "Evolution of the Household Debt Narrative: A PRISMA-compliant Systematic Literature Review," Paradigm, , vol. 28(1), pages 84-100, June.
    14. Hein, Eckhard, 2022. "Varieties of demand and growth regimes: Post-Keynesian foundations," IPE Working Papers 196/2022, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    15. Giorgos Gouzoulis, 2021. "Finance, Discipline and the Labour Share in the Long‐Run: France (1911–2010) and Sweden (1891–2000)," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 568-594, June.
    16. Karsten Kohler & Benjamin Tippet & Engelbert Stockhammer, 2023. "House price cycles, housing systems, and growth models," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 20(3), pages 461-490, December.
    17. Filippo Gusella & Engelbert Stockhammer, 2021. "Testing fundamentalist–momentum trader financial cycles: An empirical analysis via the Kalman filter," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 758-797, November.
    18. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
    19. Engelbert Stockhammer & Karsten Kohler, 2019. "Financialization and demand regimes in advanced economies," Working Papers PKWP1911, Post Keynesian Economics Society (PKES).
    20. Marco J. Lombardi & Madhusudan Mohanty & Ilhyock Shim, 2022. "The relationship of household debt and growth in the short and long run," Empirical Economics, Springer, vol. 63(4), pages 1887-1911, October.

    More about this item

    Keywords

    Comparative political economy; macroeconomics; household debt; house prices;
    All these keywords.

    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pke:wpaper:pkwp2005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jo Michell (email available below). General contact details of provider: https://edirc.repec.org/data/pksggea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.