Thammasat University students interested in economics, business, Japan, development studies, and related subjects may find it useful to participate in a free 23 August Zoom panel discussion on The Economy of Japan Viewed from the Outside.
The event, on Friday, 23 August 2024 at 2pm Bangkok time, is presented by Tokyo College, The University of Tokyo, Japan.
Students are invited to register at this link:
https://us02web.zoom.us/webinar/register/WN_5WT1cwaXRJuNorJo9N1yXA#/registration
The TU Library collection includes several books about different aspects of the Economy of Japan.
The event website explains:
This panel discussion will feature two distinguished Japanese economists from overseas. They will discuss the current situation of the Japanese economy and the challenges it faces. How do the 4D challenges (Depopulation, Deglobalization, Decarbonization, Debt) impact Japan’s economy? How do fiscal and monetary policies interact with economic growth? What measures might the government take to mitigate risks and address these changes? This discussion will provide new insights into the Japanese economy from an international perspective.
Program
Lecture
Takatoshi ITO (Tokyo College Professor, The University of Tokyo; Professor, School of International and Public Affairs, Columbia University)
Nobuhiro KIYOTAKI (Tokyo College Professor, The University of Tokyo; Professor, Department of Economics, Princeton University)
Discussion, Q&A
Moderator
Takeo HOSHI (Director, Tokyo College, The University of Tokyo)
The TU Library owns examples of published research by Professor Kiyotaki and by Professor Ito.
Two years ago, Professor Kiyotaki coauthored a paper on Housing, Distribution and Welfare.
The article abstract:
Housing is a long-lived asset whose value is sensitive to variations in expectations of long run growth rates and interest rates. When a large fraction of households has leverage, housing price uctuations cause large-scale redistribution and consumption volatility. We nd that a practical way to insure the young and the poor from the housing market uctuations is through a well-functioning rental market. In practice, home-ownership subsidies keep the rental market small and the housing cycle affects aggregate consumption. Removing home-ownership subsidies hurts old home-owners, while leverage limits hurt young homeowners.
The article’s Introduction begins:
Housing is the most important non-human asset for many households. Booms and busts in housing values have often been associated with financial crises throughout recent history, especially when accompanied by real estate lending booms. Many academics and policy makers are therefore concerned about the vulnerability of household balance sheet conditions, calling for reforms of the housing finance market so as to make it more stable. In this paper we build a tractable macroeconomic model with housing and use it to examine the causes and consequences of housing market volatility and evaluate alternative housing-related policies.
We argue that expectations of long run growth rates and interest rates have been important for explaining the low frequency movements in housing values for the United States and other developed countries. We show that changes in these fundamentals can generate substantial movements in housing prices and consumption.
The paper then examines removing home ownership subsidies and restricting the loan-to value (LTV) ratio as alternative policies that can help to reduce the economy’s volatility in response to changes in fundamentals. Both policies hurt some home owners significantly, even though they benefit renters. The removal of home ownership subsidies hurts old home owners, while the LTV cap hurts young leveraged home owners.
As older generations tend to be more politically active, our results may explain why reforming the system of home ownership subsidies has been di¢ cult to implement. We make a modelling contribution by constructing a tractable overlapping generations (OLG) model populated with young households (whose income is expected to grow) and old households (whose income is declining and who face a probability of dying). We assume that the young households are heterogeneous in deriving utility from owning versus renting homes while old households always prefer to own. The resulting framework aggregates into a representative young home-owner household with leverage, a representative young renter household and a representative old household, yet generates realistic life cycle pro les for home ownership and household leverage.
Our model does not require assumptions of heterogeneous impatience, instead uses well-documented facts about the life-cycle earnings profiles to calibrate the model’s parameters and to motivate borrowing and lending. We use the minimum amount of heterogeneity in order to study the allocation and distribution associated with housing market fluctuations. We will argue that young home owners are especially vulnerable by virtue of being leveraged while renters are more protected. […]
Therefore, if house prices equal the present value of future rents, then the price-to-rent ratio equals the inverse of the gap between the long run required return and the expected economic growth rate.4 To check the empirical relevance of this prediction, we use data from Jorda et al. (2019) to construct measures of expectations of future growth rates and future inflation rates based on the realized average rates of growth and inflation in the preceding ten years. Comparing the steady state implication of this partial equilibrium example and the data over the average of five-year non-overlapping periods, we find that such a simple example is broadly consistent with the low frequency movements of the housing price-to-rent ratio in the United States, as well as eleven other developed countries since 1960. […]
Despite the linear period utility in the model, households care about housing market risks because households marginal utility of wealth is negatively correlated with the rate of return on home ownership. Households value wealth more in states in which consumption is low temporarily and the user cost of housing is low with the arrival of an adverse shock. This is why both households and policy makers in the model are concerned with housing market volatility. Our main interest is to examine what policies and institutions can help mitigate the problems associated with the housing market. Since the key missing market in the model is the market for state contingent mortgage debt, either a policy or an institution replicating such a market’s insurance properties would be welfare improving. […]
One practical form of housing tenure that delivers net worth insurance is renting, because renting avoids leveraged exposure of a household s net worth to house price fluctuations. For renters, net worth and consumption are just as well shielded from housing price fluctuations, as for home owners under state contingent debt markets. Therefore, a policy that increases the size of the rental market, makes the consumption of young households more stable by transferring the risk of housing price fluctuations to the old. In this respect, a well-functioning rental market is a good substitute for state contingent mortgage debt.
(All images courtesy of Wikimedia Commons)