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    The West African Monetary Zone: Is inflation convergence sufficient for a currency union?
    (Routledge, 2024) Miles, William
    The West African Monetary Zone is a proposed monetary union among the nations of The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. A key characteristic for a well-functioning common currency is convergence in inflation rates among constituent members. A failure to achieve convergent inflation rates leads to real exchange rate misalignment, balance-of-payments problems, possible debt crises and economic stagnation as (often sticky) prices are all that can adjust when there is no possibility of nominal depreciation. Nigeria is by far the largest of the economies in the proposed union, and will likely dominate in terms of monetary policy. Using a pairwise approach, along with other methods, we find evidence that all other potential members exhibit inflation differentials vis-à-vis Nigeria that are, at a minimum very slow to converge to zero. There is also often slow convergence in inflation differentials among the other five nations. These findings strongly suggest much caution prior to the formal creation of this proposed common currency. © 2024 Stellenbosch University.
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    The home price-income relationship for US states
    (Routledge, 2023-05-07) Miles, William; Jung, Samuel Moon; Vijverberg, Chu-Ping C.
    There are conflicting theories on whether house prices and income should share a long-run relationship. Empirical work on the topic has yielded mixed results. Most previous studies have investigated whether the house price/income ratio is stationary (short memory) or non-stationary (has a unit root) but have not allowed for the intermediate possibility of long memory or fractional integration. We estimate fractional integration for the house price/income ratio for US states. We find most states exhibit long memory in their ratios. The states with the most long memory tend to be in the high-priced east coast and California. Southern and great plains states, in contrast, tend to exhibit the least persistence in the house price/income metric. In some housing markets ? some east coast states, California, Arizona, Florida, and Nevada, home costs can become less and less affordable for local residents, with no tendency to reverse this unaffordability within a reasonable time horizon for potential buyers. In addition to the univariate estimates, multivariate fractional cointegration tests are implemented, and the results support the findings of non-affordability hypothesis.
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    Housing and the changing impact of monetary policy
    (Elsevier Ltd, 2023-07-01) Miles, William; Zhu, Xiaoyang
    Housing is the leading indicator of the business cycle. The impact of monetary policy on housing has thus unsurprisingly been the subject of numerous studies. Some have also investigated whether the impact of monetary policy has changed since the mid-1980s. These papers to date have relied on vector-autoregressions (VARs). To avoid some of the specification issues of VARs, we employ the local projection method. We find a clear effect of monetary shocks on housing variables over the entire sample. However, we also find that over the great moderation of 1983-2008, there is no significant impact of policy shocks on either home prices or investment. Moreover, as the difference between the estimated impact of monetary policy on GDP before and during the great moderation was not as large as the same difference for residential investment, we infer that changes to housing finance, rather than simply more stable monetary policy, deserve some credit for the lesser impact of Fed shocks. Finally, we find that during the zero lower bound years spanning 2009-2020, unconventional monetary policy (UMP) appears to have had a palpable impact on the housing sector. This result is consistent with previous findings on the effectiveness of UMP.
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    Regional house price co-movement in the USA: the medium cycle is not the business cycle
    (Springer Nature, 2022-08-02) Miles, William
    Co-movement in different regional housing markets has implications for portfolio management, as well as the effectiveness of monetary and other policies. Such co-movement has thus been the subject of several previous studies. Research on regional house price cohesion has tended to focus either on long-run convergence to a common level or on business cycle synchronization. While the extent of both types of relationships is important, research on national housing, credit and equities has established the salience of co-movement at the intermediate frequency, or of medium cycles. Indeed, at the national level, medium cycles in housing and credit together have been shown to characterize the financial cycle. Research on the UK has found that regional house price co-movement is different at business versus medium cycle frequencies. In this paper, we examine co-movement of house prices across the regions of the USA. We compare co-movement at the business and medium cycle frequencies. We find that medium cycles are more volatile than short-term fluctuations, making medium-term movements more important for housing. Moreover, house price synchronization across regions is for the most part greater at the medium than the short-term frequency. There did appear to be an increase in co-movement around the time of the early 1990s recession, although this was not sustained for all regions or all frequencies. Lastly, while short-term synchronization has been declining among the regions of the US housing market, medium co-movement appears to be rising over the last several decades.
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    Scottish home prices: Compatible with Euro membership?
    (Universita Carlo Cattaneo, 2021) Miles, William
    Although the Scottish electorate voted down independence in 2014, Brexit has led to renewed calls from Scottish political leaders for a second referendum. Scottish independence would likely lead to joining the European Union, and this would obligate Scotland to eventually join the euro common currency. If Scottish home prices were not highly cohesive with those in euro zone countries, the ECB’s monetary policy could cause major disruptions for Scottish housing, and, by extension, the Scottish economy. As an example, if most euro-country home values were rising, but those in Scotland were falling, the ECB would likely run a tight monetary policy, which would be devastating to housing conditions in Scotland. We accordingly investigate the co-movement of house prices in Scotland with those in eight major euro zone countries, as well as co-movement between Scottish and UK home prices, using a variety of metrics. The use of methods that are primarily linear indicates that joining the euro may not result in a large loss of co-movement with other regional housing markets, compared to Scotland’s current correlation with UK national home prices. However, the use of a measure that takes into account differences in the magnitude, and not just the phase of cycles yields results indicating Scotland exhibits very little co-movement with other euro housing markets. Indeed Scotland has comovement metrics within the euro countries at levels similar to those of Spain and Ireland, which both suffered devastating booms and busts. Thus leaving sterling for the euro could be highly problematic.