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World Economic and Financial Surveys

World Economic Outlook

Housing and the Business Cycle

April 2008

©2008 International Monetary Fund
Ordering Information

The World Economic Outlook (WEO) presents the IMF staff's analysis and projections of economic developments at the global level, in major country groups (classified by region, stage of development, etc.), and in many individual countries. It focuses on major economic policy issues as well as on the analysis of economic developments and prospects. It is usually prepared twice a year, as documentation for meetings of the International Monetary and Financial Committee, and forms the main instrument of the IMF's global surveillance activities.

View the Full Text of the WEO (6 MB pdf file)

Contents


  Assumptions and Conventions
 
Preface
 
Foreword
 
Executive Summary
 
Chapter 1. Global Prospects and Policies
Full Text  |   Video Briefing  |   Boxes  |   Figures
   
 

Overview of Recent Developments and Prospects: Divergence but Not Decoupling

Financial Market Turbulence: Rocky Ride for the Advanced Economies

Can Emerging and Developing Economies Decouple?

Outlook and Risks for the Global Economy

Policy Challenges in a Multipolar World

Appendix 1.1. Implications of New PPP Estimates for Measuring Global Growth

Appendix 1.2. Commodity Market Developments and Prospects

References

 
Chapter 2. Country and Regional Perspectives
Full Text  |   Boxes  |   Figures
   
 

United States and Canada: How Long Will the Slowdown Last?

Western Europe: Can a Sharp Slowdown Be Averted?

Advanced Asia: How Resilient Is Growth in Japan to a Global Slowdown?

Emerging Asia: Strong Internal Momentum, but Rising Risks from Spillovers

Latin America and the Caribbean: Facing a Cold North Wind

Emerging Europe: Adjusting to a Rougher External Environment

Commonwealth of Independent States: Containing Inflation Remains the Central Challenge

Sub-Saharan Africa: Strong Growth Prospects but Risks Remain

Middle East: Inflation Is a Growing Concern

References

 
Chapter 3. The Changing Housing Cycle and the Implications for Monetary Policy
Full Text  |   Summary  |   Video  |   Boxes  |   Figures
   
 

Developments in Housing Finance

The Housing Sector and the Business Cycle

Housing Finance and Spillovers from Housing

Housing Finance and Housing as a Transmission Channel for Monetary Policy

Should Changes in the Housing Cycle Affect the Conduct of Monetary Policy?

Conclusions

Appendix 3.1. Data and Methodology

References

 
Chapter 4. Climate Change and the Global Economy
Full Text  |   Summary  |   Video  |   Boxes  |   Figures
   
 

How Will Climate Change Affect Economies?

How Can Countries Best Adapt to Climate Change?

How Can Countries Effectively and Efficiently Mitigate Climate Change?

Conclusions

Appendix 4.1. The G-Cubed Model, Baseline Assumptions, and Other Models in the Climate Change Literature

References

 
Chapter 5. Globalization, Commodity Prices, and Developing Countries
Full Text  |   Summary  |   Video  |   Boxes  |   Figures
   
 

Commodity Prices and Patterns of Integration

Globalization and Commodity Price Cycles

Explaining the Patterns

Conclusions

Appendix 5.1. Data and Methodology

References

 
  Annex: IMF Executive Board Discussion of the Outlook, March 2008
 
Statistical Appendix
  Assumptions
  What's New
  Data and Conventions
  Classification of Countries
  General Features and Composition of Groups in the World
    Economic Outlook
Classification
 
  List of Tables Part A
  Output (Tables A1–A4)
  Inflation (Tables A5–A7)
  Financial Policies (Table A8)
  Foreign Trade (Table A9)
  Current Account Transactions (Tables A10–A12)
  Balance of Payments and External Financing (Tables A13–
    A15)
  Flow of Funds (Table A16)
  Medium–Term Baseline Scenario (Table A17)
 
  List of Tables Part B
  Output (Tables B1–B2)
  Inflation (Tables B3–B4)
  Financial Policies (Tables B5–B10)
  Foreign Trade (Tables B11–B13)
  Current Account Transactions (Tables B14–B17)
  Balance of Payments and External Financing (Tables B18–B20)
  External Debt and Debt Service (Tables B21–B25)
  Medium-Term Baseline Scenario (Table B26)
 
  World Economic Outlook and Staff Studies for the World Economic Outlook, Selected Topics
Boxes
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Data
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1.1 Is There a Credit Crunch?
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  1.2 Depreciation of the U.S. Dollar: Causes and Consequences
Chart   1.3 Multilateral Consultation on Global Imbalances: Progress Report
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Data
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1.4 Dollar Depreciation and Commodity Prices
Chart Data 1.5 Why Hasn't Oil Supply Responded to Higher Prices?
Chart Data 1.6 Oil Price Benchmarks
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2.1 When Does Fiscal Stimulus Work?
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Data
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2.2 Petrodollars and Bank Lending to Emerging Markets
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Data
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3.1 Assessing Vulnerabilities to Housing Market Corrections
Chart Data 4.1 Rising Car Ownership in Emerging Economies: Implications for Climate Change
Chart Data 4.2 South Asia: Illustrative Impact of an Abrupt Climate Shock
    4.3 Macroeconomic Policies for Smoother Adjustment to Abrupt Climate Shocks
Chart
Chart
Data
Data
4.4 Catastrophe Insurance and Bonds: New Instruments to Hedge Extreme Weather Risks
    4.5 Recent Emission-Reduction Policy Initiatives
    4.6 Complexities in Designing Domestic Mitigation Policies
Chart Data 5.1 How Does the Globalization of Trade and Finance Affect Growth? Theory and Evidence
Chart Data 5.2 The Current Commodity Price Boom in Perspective
 
Tables
1.1 Overview of the World Economic Outlook Projections
1.2 Shares of Global GDP, 2007
1.3 Global Oil Demand and Production by Region
1.4 Food, Fuel, and Headline Inflation
2.1 Advanced Economies: Real GDP, Consumer Prices, and Unemployment
2.2 Advanced Economies: Current Account Positions
2.3 Selected Asian Economies: Real GDP, Consumer Prices, and Current Account Balance
2.4 Selected Western Hemisphere Economies: Real GDP, Consumer Prices, and Current Account Balance
2.5 Selected Emerging European Economies: Real GDP, Consumer Prices, and Current Account Balance
2.6 Commonwealth of Independent States (CIS): Real GDP, Consumer Prices, and Current Account Balance
2.7 Selected African Economies: Real GDP, Consumer Prices, and Current Account Balance
2.8 Selected Middle Eastern Economies: Real GDP, Consumer Prices, and Current Account Balance
3.1 Institutional Differences in National Mortgage Markets and the Mortgage Market Index
3.2 Abnormal Contributions to GDP Growth Weakness One Year before Recessions
3.3 Features of House Price Cycles
3.4 Forecast Variance Decomposition: Housing Demand Shocks—Average across Countries
3.5 Optimal Coefficients in the Taylor Rule
3.6 Estimates of the Error-Correction Model of Consumption
4.1 Losses in Real GNP, 2040
4.2 Baseline Growth Assumptions
4.3 Carbon-Based Emission Coefficients
4.4 Summary of the Baseline Scenario
4.5 Emission Intensities in the Baseline
4.6 Emission Reductions and Consumption Losses Following a Standardized Carbon Price Shock
4.7 Comparison of Climate Policy Models
5.1 Cross–Sectional Regressions: Overall Trade
5.2 Cross-Sectional Regressions: Commodity Trade, Foreign Direct Investment (FDI)
5.3 Panel Regressions: Overall Trade
5.4 Panel Regressions: Commodity Trade, Foreign Direct Investment (FDI)
5.5 Panel Regressions: Institutions and Policies
 
Figures
Chart Data 1.1 Global Indicators
Chart Data 1.2 Current and Forward-Looking Indicators
Chart Data 1.3 Global Inflation
Chart Data 1.4 Measures of Monetary Policy and Liquidity
Chart Data 1.5 Developments in Mature Credit Markets
Chart Data 1.6 Mature Financial and Housing Market Indicators
Chart Data 1.7 External Developments in Selected Advanced Economies
Chart Data 1.8 Emerging Economy Financial Conditions
Chart Data 1.9 External Developments in Emerging and Developing Economies
Chart Data 1.10 Growing Global Role of Emerging and Developing Economies
Chart Data 1.11 Global Outlook
Chart Data 1.12 Risks to the Global Outlook
Chart Data 1.13 Measures of the Output Gap and Capacity Pressures
Chart Data 1.14 Current Account Balances and Net Foreign Assets
Chart Data 1.15 Two Scenarios for the Global Economy
Chart Data 1.16 Purchasing-Power-Parity (PPP) Exchange Rate Revisions and Global GrowthPurchasing-Power-Parity (PPP) Exchange Rate Revisions and Global Growth
Chart Data 1.17 Commodity and Petroleum Prices
Chart Data 1.18 World Oil Market Balances
Chart Data 1.19 Energy and Metal Prices and Metal Consumption Growth
Chart Data 1.20 Recent Developments in Major Food Crops
Chart Data 1.21 Macroeconomic Implications of High Commodity Prices
Chart Data 2.1 United States: Housing Cycles in Perspective
Chart Data 2.2 Western Europe: Tightening Lending Standards
Chart Data 2.3 Japan: Will Domestic Demand Be Able to Support Growth?
Chart Data 2.4 Emerging Asia: Trade Patterns and Growth Developments
Chart Data 2.5 Latin America: Long Road to Stronger Performance
Chart Data 2.6 Emerging Europe: Macroeconomic Vulnerabilities on the Rise
Chart Data 2.7 Commonwealth of Independent States (CIS): Inflation Pressures Remain the Central Concern
Chart Data 2.8 Sub-Saharan Africa: Vulnerability of Commodity Exports to Global Demand
Chart Data 2.9 Middle East: Strong Growth, Rising Inflation
Chart Data 3.1 Mortgage Debt and Financial Innovation
Chart
Chart
Data 3.2 Correlation of Real House Prices and Real Residential Investment with the Output Gap
Chart Data 3.3 Labor Market Characteristics and the Contribution of Residential Investment to the Business Cycle
Chart Data 3.4 Mortgage Market Index, Consumption and House Price Correlation, and the Long-Run Marginal Propensity to Consume out of Housing Wealth
Chart Data 3.5 Share of Output Variation Explained by Housing Demand Shocks
Chart Data 3.6 Correlation between the Shares of Output and Housing Sector Variation Explained by Housing Demand Shocks
Chart Data 3.7 Correlation between the Share of Output Variation Explained by Housing Demand Shocks and the Mortgage Market Index
Chart   3.8 Housing and the Monetary Transmission Mechanism
Chart Data 3.9 Effect of Monetary Policy Shocks on Output and Housing Sector Variables in the United States
Chart Data 3.10 Elasticity of Real Residential Investment, Real House Prices, and Output to a 100-Basis-Point Increase in Short-Term Interest Rates
Chart Data 3.11 Interest Rate Elasticity of Real Residential Investment, Real House Prices, and Output and the Mortgage Market Index
Chart Data 3.12 Monetary Policy Counterfactuals
Chart Data 3.13 Macroeconomic Model with Housing as Collateral: Responses of Output and Consumption to Shocks for Different Loan-to-Value (LTV) Ratios
Chart Data 3.14 Macroeconomic Model with Housing as Collateral: Response of Nominal Interest Rates to a Positive Housing Demand Shock and a Negative Financial Shock for Various Loan-to-Value (LTV) Ratios
Chart Data 4.1 Carbon Dioxide Energy-Related Emissions
Chart Data 4.2 Emission Forecasts
Chart Data 4.3 Mean GDP Losses at Various Levels of Warming
Chart Data 4.4 Damages from 2.5°C Warming by Region
Chart Data 4.5 Impact of Warming by Region and Sector
Chart Data 4.6 Physical Impact by 2080
Chart Data 4.7 Variation in Estimates of Damages from Climate Change
Chart Data 4.8 Weather Derivatives and Catastrophe Bonds
Chart Data 4.9 Global Emission Targets and Paths, 1990–2100
Chart Data 4.10 Uniform Carbon Tax, 2013–40
Chart Data 4.11 Total Costs of Mitigation, 2013–40
Chart Data 4.12 Cap-and-Trade System, 2013–40
Chart Data 4.13 International Transfers under the Cap-and-Trade System
Chart Data 4.14 Cap-and-Trade System for All Regions Based on Share of World Population, 2013–40
Chart Data 4.15 Global Emissions from Energy Only, 2030
Chart Data 5.1 Trade in Goods and Services
Chart Data 5.2 Merchandise Exports of Emerging and Developing Economies
Chart Data 5.3 Gross Foreign Capital and Gross Foreign Liabilities
Chart Data 5.4 Commodity Prices
Chart Data 5.5 Values of Exports of Commodities and Manufactures
Chart Data 5.6 Volumes of Exports of Commodities and Manufactures
Chart Data 5.7 Patterns of Regional Trade
Chart Data 5.8 Foreign Direct Investment in Emerging and Developing Economies
Chart Data 5.9 Policy and Institutional Environment
Chart Data  5.10  Commodity Price Booms
Chart Data  5.11  Event Study of the Commodity Terms of Trade, 1970–2007
Chart Data     
Chart Data  5.12  Explaining the Increase in Integration from the 1980s to the 2000s