The Politics of Economic Crises?

Transcription

1 1 June 4, SUERF/Bank of Finland Conference: Housing Markets - A Shelter from the Ray Duch Storm (Nuffield or Cause College Oxford of the University) Storm?

2 June 4, SUERF/Bank of Finland Conference: Housing Markets - A Shelter from the Storm or Cause of the Storm?

3 The Politics of Economic Crisis 1. Political climate shapes severity of economic crisis

4 The Politics of Economic Crisis 1. Political climate shapes severity of economic crisis Inflation Expectations

5 The Politics of Economic Crisis 1. Political climate shapes severity of economic crisis Inflation Expectations Economic Growth

6 The Politics of Economic Crisis 1. Political climate shapes severity of economic crisis Inflation Expectations Economic Growth 2. Political-economic nexus shapes policy reactions

7 The Politics of Economic Crisis 1. Political climate shapes severity of economic crisis Inflation Expectations Economic Growth 2. Political-economic nexus shapes policy reactions 3. What about housing?

8 Inflation Expectations: The REH Hypothesis

9 Inflation Expectations: The REH Results Figure 2 Expectations and Realized Inflation in Ten Countries Italy Ireland France Belgium Realized Inflation Realized Inflation Realized Inflation Realized Inflation Expected Inflation Expected Inflation Expected Inflation Expected Inflation y= (x), joint test: p <.363 y= (x), joint test: p <.998 y= (x), joint test: p <.014 y= (x), joint test: p <.029 y= (x), FM joint test: p <.889 y= (x), FM joint test: p <.419 y= (x), FM joint test: p <.124 y= (x), FM joint test: p <.013 Germany Portugal Denmark Netherlands Realized Inflation Realized Inflation Realized Inflation Realized Inflation Expected Inflation Expected Inflation Expected Inflation Expected Inflation y= (x), joint test: p <.005 y= (x), joint test: p <.002 y= (x), joint test: p < 0 y= (x), joint test: p <.001 y= (x), FM joint test: p < 0 y= (x), FM joint test: p < 0 y= (x), FM joint test: p < 0 y= (x), FM joint test: p < 0 Realized Inflation Spain Expected Inflation y= (x), joint test: p < 0 y= (x), FM joint test: p < 0 Realized Inflation Britain Expected Inflation y= (x), joint test: p < 0 y= (x), FM joint test: p < 0 Solid Line: REH 45-degree line Long Dashed Line: Estimated OLS Line Short Dash Dot Line: FM-OLS Line Estimates on First Line of Note: OLS with Newey-West SEs Estimates on Second Line of Note: FM-OLS

10 Inflation Expectations: A Political Explanation for REH Figure 4: Partisan Assymetry and Accuracy of Inflation Expectations Realized Inflation Expected Inflation

11 Politics and Irrational Optimism and Pessimism Optimism/Pessimism=Residuals of economy regressed on leading indicators

12 Politics and Irrational Optimism and Pessimism Optimism/Pessimism=Residuals of economy regressed on leading indicators Political explanations for irrational optimism/pessimism?

13 Politics and Irrational Optimism and Pessimism Optimism/Pessimism=Residuals of economy regressed on leading indicators Political explanations for irrational optimism/pessimism? Regress residual series on perceptions of government handling of macro-economy

14 Politics and Irrational Optimism and Pessimism Optimism/Pessimism=Residuals of economy regressed on leading indicators Political explanations for irrational optimism/pessimism? Regress residual series on perceptions of government handling of macro-economy Cross-national variation

15 Figure: Residuals from Consumer Sentiment Regressions [] [] [] []

16 German Government Popularity and Residuals from Consumer Sentiment Model: Consumer Sentiment Residuals Government Popularity 1980.Jan 1985.Jan 1990.Jan 1995.Jan 2000.Jan 2005.Jan 2010.Jan Year Consumer Sentiment Residuals Government Popularity

17 Partisans Differ on the Economy Evidence from US/CCAP and UK/CCAP election studies

18 Partisans Differ on the Economy Evidence from US/CCAP and UK/CCAP election studies On macro-economic attitudes partisans differ considerable

19 Partisans Differ on the Economy Evidence from US/CCAP and UK/CCAP election studies On macro-economic attitudes partisans differ considerable On attitudes toward housing prices no partisan differences

20 Unemployment Strong Mod Lean Inde- Lean Mod Strong Dem Dem Dem pendent Rep Rep Rep Much more A little more No change A little less Much less Total N Inflation Much higher Slightly higher Same Slightly lower Much lower Total N

21 What about U.S. Politics and Housing Prices? Housing prices Strong Mod Lean Inde- Lean Mod Strong Dem Dem Dem pendent Rep Rep Rep Much higher Slightly higher Same Slightly lower Much lower Total N

22 Trend in Economic Attitudes over Presidential Campaign 80% 70% 60% 50% January 40% 30% March September October December 20% 10% 0% Unemployment Inflation Housing

23 Table: Similar Result for UK Campaign: May 2009 Labour Conservative Unemployment Much Higher Slightly Higher Same Slightly Lower Much Lower Total Observations Inflation Much Higher Slightly Higher Same Slightly Lower Much Lower Total Observations

24 Table: What about UK Campaign and Housing Prices? Labour Conservative Housing prices Much Higher Slightly Higher Same Slightly Lower Much Lower Total Observations

25 Some Tentative Observations Opposition sentiment in the electorate exaggerates the negative (Brown and Sarkozy)

26 Some Tentative Observations Opposition sentiment in the electorate exaggerates the negative (Brown and Sarkozy) Incumbent sentiment exaggerates the positive (Obama)

27 Some Tentative Observations Opposition sentiment in the electorate exaggerates the negative (Brown and Sarkozy) Incumbent sentiment exaggerates the positive (Obama) Perceived good handling of economy exaggerates the positive (Merkel?) Housing price expectations not affected by partisanship Housing price expectations not affected by partisanship