nep-his New Economics Papers
on Business, Economic and Financial History
Issue of 2014‒07‒28
24 papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. THE EVOLUTION OF BANK BOARDS OF DIRECTORS IN NEW YORK, 1840-1950 By Eugene White; Howard Bodenhorn
  2. Shifting Mandates: The Federal Reserve's First Centennial By Reinhart, Carmen M.; Rogoff, Kenneth S.
  3. FLOATING A “LIFEBOAT”: THE BANQUE DE FRANCE AND THE CRISIS OF 1889 By Eugene White; Pierre-Cyrille Hautcoeur; Angelo Riva
  4. Costs and Benefits to Phasing Out Paper Currency By Rogoff, Kenneth S.
  5. O desenvolvimento do setor siderúrgico brasileiro entre 1900 e 1940: Criação de empresas e evolução da capacidade produtiva By Barros, Gustavo
  6. Did Purchasing Power Parity Hold in Medieval Europe? By Adrian R. Bell; Chris Brooks; Tony K. Moore
  7. Oskar Lange or how IS-LM came to be interpreted as a Walrasian model By Goulven Rubin
  8. Commercial Imperialism? Political Influence and Trade during the Cold War By Berger, Daniel; Easterly, William; Nunn, Nathan; Satyanath, Shanker
  9. Saving Rate, Total Factor Productivity and Growth Process for Developing Countries By Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
  10. Milton Friedmans economics and political economy: an old Keynesian critique By Thomas I. Palley
  11. Economists as political philosophers : a critique of normative trade theory By Robert Lepenies
  12. Historical energy price shocks and their changing effects on the economy By Dirk-Jan van de Ven; Roger Fouquet
  13. Calculating nuclear accident probabilities from empirical frequencies By M. Ha-Duong; V. Journé
  14. The aggregate effects of long run sectoral reallocation By Claire Reicher
  15. Income versus Sanitation; Mortality Decline in Paris, 1880-1914 By Lionel Kesztenbaum; Jean-Laurent Rosenthal
  16. A Tax Revenue Dataset for Sub-Saharan Africa: 1980-2010 By Mario MANSOUR
  17. NAFTA at 20: Misleading Charges and Positive Achievements By Gary Clyde Hufbauer; Cathleen Cimino; Tyler Moran,
  18. America's Jobs Challenges and the Continuing Role of the U.S. Department of Labor By Katz, Lawrence F.
  19. Beyond Crises: The Unending Challenge of Controlling Nuclear Weapons and Materials By Bunn, Matthew G.
  20. Questionable Inference on the Power of Pre-Colonial Institutions in Africa By Denis Cogneau; Yannick Dupraz
  21. The Regime Complex for Managing Global Cyber Activities By Nye, Joseph S.
  22. It's A Sin - Contraceptive Use, Religious Beliefs, and Long-Run Economic Development By Prettner, Klaus; Strulik, Holger
  23. Net fiscal flows and interregional redistribution in Italy: a long run perspective (1951-2010) By Giannola, Adriano; Scalera, Domenico; Petraglia, Carmelo
  24. Is Housing Overvalued? By Ryan Fox; Peter Tulip

  1. By: Eugene White (Rutgers University and NBER); Howard Bodenhorn (Clemson University and NBER)
    Abstract: Contemporary bank governance is criticized for manager-dominated (insider) boards of directors, but from the beginning of the nineteenth century, bank presidents appear also to have operated as chairmen of the boards of directors. However, the managers were constrained by a variety of rules that tended to align the interests of management, shareholders and other stakeholders until the mid-twentieth century. We trace this development through New York banking law and new data on banks chartered by the State of New York.
    Keywords: corporate governance, board of directors, bank history
    JEL: G21 G3 N21
    Date: 2014–05–25
  2. By: Reinhart, Carmen M.; Rogoff, Kenneth S.
    Abstract: The Federal Reserve's mandate has evolved considerably over the organization's hundred-year history. It was changed from an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed's mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We argue for a return to multiple instruments, including a more active role for reserve requirements.
    Date: 2013
  3. By: Eugene White (Rutgers University and NBER); Pierre-Cyrille Hautcoeur (Paris School of Economics and EHESS); Angelo Riva (European Business School)
    Abstract: When faced with a run on a “systemically important” but insolvent bank in 1889, the Banque de France pre-emptively organized a lifeboat to ensure that depositors were protected and an orderly liquidation could proceed. To protect the Banque from losses on its lifeboat loan, a guarantee syndicate was formed, penalizing those who had participated in the copper speculation that had caused the crisis bringing the bank down. Creation of the syndicate and other actions were consistent with mitigating the moral hazard from such an intervention. This episode contrasts the advice given by Bagehot to the Bank of England to counter a panic by lending freely at a high rate on good collateral, allowing insolvent institutions to fail.
    Keywords: crisis
    JEL: E58
    Date: 2014–05–25
  4. By: Rogoff, Kenneth S.
    Abstract: Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve’s main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.
    Date: 2014
  5. By: Barros, Gustavo
    Abstract: Despite the existence of several attempts to produce iron locally not only along the colonial period but also along the Empire, for different reasons these endeavors failed, each in its own time, and the Brazilian steel-making entered the 20th century with very little practical expression. However, when the Companhia Siderúrgica Nacional (CSN, National Steel Company) was created, in 1941, as an answer to the national steel problem, the domestic steel industry had already a much more significant expression. By the end of the 1930s, it had already 26 firms with a reasonably diversified production which supplied a relevant share of the internal demand. Thus, between 1900 and 1940, and especially in the 1920s and 1930s, the Brazilian steel-making sector was capable of conducing an important development process. The reconstruction of this process of evolution experienced by the steel-making sector, focused on the creation of firms and on the expansion of productive capacity, is the object of this paper.
    Keywords: Brazil; steel-making sector development; economic history; Brazilian First Republic; 1930s decade.
    JEL: L61 N66 O25
    Date: 2013–06
  6. By: Adrian R. Bell (ICMA Centre, Henley Business School, University of Reading); Chris Brooks (ICMA Centre, Henley Business School, University of Reading); Tony K. Moore (ICMA Centre, Henley Business School, University of Reading)
    Abstract: This paper employs a unique, hand-collected dataset of exchange rates for five major currencies (the lira of Barcelona, the pound sterling of England, the pond groot of Flanders, the florin of Florence and the livre tournois of France) to consider whether the law of one price and purchasing power parity held in Europe during the late fourteenth and early fifteenth centuries. Using single series and panel unit root and stationarity tests on ten real exchange rates between 1383 and 1411, we show that the parity relationship held for the pound sterling and some of the Florentine florin series individually and for almost all of the groups that we investigate. Our findings add to the weight of evidence that trading and arbitrage activities stopped currencies deviating permanently from fair values and that the medieval financial markets were well functioning. This supports the results reported in other recent studies which indicate that many elements of modern economic theories can be traced back over 700 years in Europe.
    Keywords: Law of one price, purchasing power parity, medieval markets, historical finance
    JEL: F31 N13 N23
    Date: 2014–01
  7. By: Goulven Rubin (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille I - Sciences et technologies - Université Lille II - Droit et santé - Université Lille III - Sciences humaines et sociales - PRES Université Lille Nord de France)
    Abstract: A few years after the publication of The General Theory, a number of economists began to present Keynes's model, identified with IS-LM, as a particular case of the Walrasian model. This view of IS-LM has often been rationalized by a basic syllogism: IS-LM was invented by John Hicks, Hicks was a Walrasian, hence IS-LM was Walrasian. But as some historians of macroeconomics have shown, this syllogism is false. Considering this confusion as an established fact, this article studies how and why IS-LM came to be considered as Walrasian. It shows that the standard view took its roots in "The Rate of Interest and the Optimum Propensity to Consume", a paper published by Oskar Lange in 1938, and resulted from a need to clarify the foundations of Keynes's theory.
    Keywords: IS-LM; Oskar Lange; History of macroeconomics; John R. Hicks; Neoclassical Synthesis
    Date: 2014–06–30
  8. By: Berger, Daniel; Easterly, William; Nunn, Nathan; Satyanath, Shanker
    Abstract: We provide evidence that increased political influence, arising from CIA interventions during the Cold War, was used to create a larger foreign market for American products. Following CIA interventions, imports from the US increased dramatically, while total exports to the US were unaffected. The surge in imports was concentrated in industries in which the US had a comparative disadvantage, not a comparative advantage. Our analysis is able to rule out decreased trade costs, changing political ideology, and an increase in US loans and grants as alternative explanations. We provide evidence that the increased imports arose through direct purchases of American products by foreign governments.
    Date: 2013
  9. By: Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
    Abstract: The Solow [1957] implies that the TFP is the core factor of economic growth. If the economy bases merely on capital accumulation without technological progress, the diminishing returns on capital accumulation will eventually de- presses economic growth to zero. Accordingly, Solowian supporters attribute the miracle economic growths in Newly Industrialized Economies (NIEs) in sec- ond half of 20th century to adoption of technologies previously developed by more advanced economies. Pack [1992] suggests "the source of growth in a few Asian economies was their ability to extract relevant technological knowledge from industrial economies and utilize it productively within domestic economy".
    Date: 2014–07–15
  10. By: Thomas I. Palley
    Abstract: Milton Friedman's influence on the economics profession has been enormous. In part, his success was due to political forces that have made neoliberalism the dominant global ideology, but Friedman also rode those forces and contributed to them. Friedman's professional triumph is testament to the weak intellectual foundations of the economics profession which accepted ideas that are conceptually and empirically flawed. His success has taken economics back in a pre-Keynesian direction and squeezed Keynesianism out of the academy. Friedman's thinking also frames so-called new Keynesian economics which is simply new classical macroeconomics with the addition of imperfect competition and nominal rigidities. By enabling the claim that macroeconomics is fully characterized by a divide between new Keynesian and new classical macroeconomics, new Keynesianism closes the pincer that excludes old Keynesianism. As long as that pincer holds, economics will remain under Friedman's shadow.
    Keywords: Friedman, monetarism, new classical macroeconomics, new Keynesian, neoliberalism
    Date: 2014
  11. By: Robert Lepenies
    Abstract: Economists are political philosophers. This claim is defended based on an investigation of normative arguments made in economics textbooks. The paper aims to explain, reconstruct and contest the neoclassical vision implicit in mainstream economic trade theory. Analyzing arguments made by international economists from the perspective of political philosophy, I show how the contemporary defence of free markets and trade liberalization is linked to a specific normative ideal of the political and social good.
    Keywords: Political philosophy, Neoclassical economics, Normative trade theory, Free trade, Efficiency
    JEL: A12 A13 B21 B50 D60 F11
    Date: 2014–06
  12. By: Dirk-Jan van de Ven; Roger Fouquet
    Abstract: The purpose of this paper is to identify the changes in the impact of energy shocks on economic activity – with an interest in assessing if an economy’s vulnerability and resilience to shocks improved with economic development. Using data on the United Kingdom over the last three hundred years, the paper identifies supply, aggregate demand and residual shocks to energy process and estimates their changing influence on energy prices and GDP. The results suggest that the economy became more vulnerable to supply shocks with its increasing dependence on coal, and less vulnerable with its partial transition to oil. However, the transition from exporting coal to importing oil increased the negative impacts of demand shocks. More generally, the results indicate that vulnerability and resilience to shocks did not progress systematically as the economy developed. Instead, the changes in vulnerability and resilience depended greatly on the circumstances related to the demand for and supply of energy sources.
    Date: 2014–04
  13. By: M. Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech); V. Journé (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech)
    Abstract: Since there is no authoritative, comprehensive and public historical record of nuclear power plant accidents, we reconstructed a nuclear accident data set from peer-reviewed and other literature. We found that, in a sample of five random years, the worldwide historical frequency of a nuclear major accident, defined as an INES level 7 event, is 14 %. The probability of at least one nuclear accident rated at level ≥4 on the INES scale is 67 %. These numbers are subject to uncertainties because of the fuzziness of the definition of a nuclear accident. © 2014 Springer Science+Business Media New York.
    Date: 2014
  14. By: Claire Reicher
    Abstract: The construction bust which accompanied the Great Recession, and the accompanying need to shift workers across sectors, have provoked a discussion about mismatch and the Beveridge Curve, alongside a discussion about firm-level dispersion. These discussions echo an ongoing discussion about the effects of long run sectoral reallocation. Based on estimates from a large state space model over a long sample for the United States, long run sectoral reallocation does not appear to be systematically related to movements in the Beveridge Curve, although reallocation does appear to be countercyclical and related to falls in the trend employment-population ratio. The recent shift in the Beveridge Curve during the Great Recession is unusual in this respect. An analysis of historical patterns reveals a handful of additional reallocative episodes, with large episodes occurring during the mid-1970s and early 2000s recessions, in addition to during the Great Recession. In addition, these episodes appear to be related to other dispersion shocks which have been increasingly discussed in the literature
    Keywords: sectoral shifts, reallocation, Beveridge Curve, employment, unemployment, vacancies, dispersion
    JEL: C32 E24 E32
    Date: 2014–05
  15. By: Lionel Kesztenbaum (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, INED - Institut National d'Etudes Démographiques Paris - INED); Jean-Laurent Rosenthal (HSS CALTECH - Division of the Humanities and Social Sciences - California Institute of Technology)
    Abstract: After 1850, mortality began its long-term fall in most industrialized countries, a process that has been linked to rising incomes and improved water infrastructure. The problem, however, is that these contribution are jointly determined and feedback into each other. Here we estimate their impact using a longitudinal data set on mortality and income for each of Paris' 80 neighborhoods. Income and sanitation both contributed to the decrease in mortality, a standard deviation increase in either variable produces a two years gain in life expectancy. These results give insights on the determinants of the health transition but also on the long-term evolution of health inequality.
    Keywords: Differential mortality ; Wealth ; Urbanization ; Paris ; Sanitation
    Date: 2014–06
  16. By: Mario MANSOUR (Fiscal Affairs Department - International Monetary Fund)
    Abstract: This paper presents a unique tax revenue dataset for Sub-Saharan Africa, which main innovation is the level of detail it provides about tax revenue sources for a large number of countries (41) and over a long time period (1980-2010). The paper describes how the dataset was constructed, identifying along the way problem areas in tax revenue statistics in Sub-Saharan Africa and possible improvements. A graphical analysis highlights revenue performance over time and across three dimensions: income levels, the relative importance of tax revenue from extractive industries, and trading groups (free-trade areas and customs unions). The dataset, available at, should be useful to a wide range of users and researchers, including academics, tax policy practitioners and advisers, and revenue and customs administrations.
    JEL: H20 O10
    Date: 2014–07
  17. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Cathleen Cimino (Peterson Institute for International Economics); Tyler Moran, (Peterson Institute for International Economics)
    Abstract: The North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada, which took effect 20 years ago, continues to face divided public opinion. Opponents of free trade agreements (FTAs) cite NAFTA as a job-killing precedent, while proponents argue that the economic gains from NAFTA have been considerable and unappreciated. This Policy Brief analyzes the record of NAFTA in order to clear the air so that the benefits and challenges of trade can be examined objectively. In the last 20 years, trade, investment, and economic interdependence among the three countries have grown dramatically. Nearly 2 million US jobs now depend on trade with Mexico. Closer integration with the United States and Canada has transformed Mexico's auto industry from a minor backwater into a major automotive powerhouse. The analysis presented here argues that increased trade with Mexico led to some US job losses during adjustments but that these were very small compared to the usual churn and to job losses due to other factors over the same period. The pact contributed some to wage losses in manufacturing but not to any lasting and significant increase in US unemployment. Also contrary to what opponents predicted, NAFTA did not encourage more illegal immigration to the United States. Above all, NAFTA created a new foundation for US-Mexican relations by facilitating Mexico's transition to a multiparty political state with a market-oriented system.
    Date: 2014–05
  18. By: Katz, Lawrence F.
    Date: 2014
  19. By: Bunn, Matthew G.
    Abstract: Book abstract: At the height of the Cultural Revolution a Chinese long-range nuclear missile is fired within the country, and the nuclear warhead it is carrying detonates. A French nuclear device is exploded in Algeria during a coup there. The Soviet empire has collapsed, and shots are fired at a Russian crowd intent on rushing a nuclear weapons-laden plane straining to remove a stash of nuclear weapons to a safer locale. Pakistani civilian governments are routinely pushed aside by a powerful, nuclear-armed military that observers worry might yet itself fall prey to a faction willing to seize a portion of Pakistan’s nuclear arsenal. This volume reveals previously unknown details on each case and teases out what is to be learned. This book is ideal not only for policymakers and analysts, but for historians and teachers as well.
    Date: 2013
  20. By: Denis Cogneau (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IRD - Institut de Recherche pour le Développement - Institut de Recherche pour le Développement); Yannick Dupraz (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In their paper "Pre-Colonial Ethnic Institutions and Contemporary African Development" [Econometrica 81(1): 113-152], Stelios Michalopoulos and Elias Papaioannou claim that they document a strong relationship between pre-colonial political centralization and regional development, by combining Murdock's ethnographic atlas (1967) with light density at night measures at the local level. We argue that their estimates do not properly take into account population effects. Among lowly populated areas, luminosity is dominated by noise, so that with linear specifications the coefficient of population density is biased downwards. We reveal that the identification of the effect of ethnic centralization very much relies on these areas. We implement a variety of models where the effect of population density is non-linear, and/or where the bounded or truncated nature of luminosity is taken into account. We conclude that the impact of ethnic-level political centralization on development is all contained in its long-term correlation with population density. We also abstract from the luminosity-population nexus by analyzing survey data for 33 countries. We show that individual-level outcomes like access to utilities, education, asset ownership etc. are not correlated with ethnic-level political centralization.
    Keywords: Institutions ; Africa ; Population ; Development ; Light intensity at night
    Date: 2014–06
  21. By: Nye, Joseph S.
    Abstract: When we try to understand cyber governance, it is important to remember how new cyberspace is. “Cyberspace is an operational domain framed by use of electronics to…exploit information via interconnected systems and their associated infra structure†(Kuehl 2009). While the US Defense Department sponsored a modest connection of a few computers called ARPANET (Advanced Research Projects Agency Network) in 1969, and the World Wide Web was conceived in 1989, it has only been in the last decade and a half that the number of websites burgeoned, and businesses begin to use this new technology to shift production and procurement in complex global supply chains. In 1992, there were only a million users on the Internet (Starr 2009, 52); today, there are nearly three billion, and the Internet has become a substrate of modern economic, social and political life. And the volatility continues. Analysts are now trying to understand the implications of ubiquitous mobility, the “Internet of everything†and storage of “big data.†Over the past 15 years, the advances in technology have far outstripped the ability of institutions of governance to respond, as well as our thinking about governance. Since the 1970s, political scientists have looked at the international governance processes of various global affairs issues through the perspective of regime theory (Keohane and Nye 1977; Ruggie 1982). This paper is a mapping exercise of cyber governance using regime theory. Regimes are the “principles, norms, rules and procedures that govern issue areas in international affairs,†but these concepts have rarely been applied to the new cyber domain (Krasner 1983). In its early days, thinking about cyber governance was relatively primitive. Ideological libertarians proclaimed that “information wants to be free,†portraying the Internet as the end of government controls. In practice, however, governments and geographical jurisdictions have been playing a major role in cyber governance right from the start.
    Date: 2014
  22. By: Prettner, Klaus (Department of Economics); Strulik, Holger (Department of Business and Economics)
    Abstract: This study presents a novel theory on the interaction of social norms, fertility, education, and their joint impact on long-run economic development. The theory takes into account that sexual intercourse is utility enhancing and that the use of modern contraceptives potentially conflicts with prevailing social norms (religious beliefs). The theory motivates the existence of two steady states. At the traditional steady state, the economy stagnates, fertility is high, education is minimal, and the population sustains a norm according to which modern contraceptives are not used. At the modern steady state, the population has abandoned traditional beliefs, modern contraceptives are used, fertility is low and education and economic growth are high. Social dynamics explain why both equilibria are separated by a saddlepoint-equilibrium (a separatrix), i.e. why it is so hard to transit from the traditional regime to the modern regime. Enhancing the value of education is identified as a promising policy to encourage contraceptive use and to initiate the take-off to long-run growth.
    Keywords: Religion; fertility; sex; contraceptive use; education; economic growth
    JEL: I25 J10 O40 Z12
    Date: 2014–07–07
  23. By: Giannola, Adriano; Scalera, Domenico; Petraglia, Carmelo
    Abstract: By providing a long run reconstruction of regional Net Fiscal Flows (NFFs) in Italy throughout the last six decades (1951-2010), this paper documents the substantial rise of fiscal transfers to Mezzogiorno (i.e. Southern Italy) from the rest of the country. Besides, three further arguments are presented. First, we find that the prominent upsurge of NFFs in 1980s and 1990s has exerted a scarce impact on the North-South gap, mainly because it has not been connected to a stronger commitment in supply-side regional and development policies, and the needed rise of capital expenditure in Mezzogiorno. Second, we ascribe most of the increase in NFFs to the generalized escalation in current primary expenditure related to the “decentralization without accountability” design of fiscal reforms implemented in the 1970s. Third, we evaluate the size of interregional redistribution in the light of regional income differences and the burden imposed to contributing regions. By making use of several indexes and analytical procedures intensively used in the literature, we reach the conclusion that interregional redistribution in Italy has been moderate, considering the severity of initial differences in economic and social conditions.
    Keywords: Italian Mezzogiorno, net fiscal flows, regional redistribution, regional disparities
    JEL: H50 H70 H72 R10
    Date: 2014–07–11
  24. By: Ryan Fox (Reserve Bank of Australia); Peter Tulip (Reserve Bank of Australia)
    Abstract: This paper examines whether it costs more to own a home or to rent. We argue this is a useful criterion for assessing housing overvaluation. We use a new Australian dataset, which includes prices and rents for matched properties, letting us value housing in levels. We find that if real house prices grow at their historical average pace, then owning a home is about as expensive as renting. If prices grow more slowly, as some forecasters predict, the framework used in this paper suggests that the average home buyer would be financially better off renting. We decompose house prices into contributions from rents, interest rates and expected capital gains, which may help policymakers in the detection of housing bubbles. Recent data do not show signs of a bubble.
    Keywords: dwelling prices; housing market; overvaluation; tenure choice; user cost
    JEL: R00 R21
    Date: 2014–07

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