Nuffield College, Members of the College, John Muellbauer

Annual Reports

Annual Report 2009-2010 (Expand/Collapse)

Annual Report 2009-2010 (2009-2010)

John Muellbauer (Official Fellow) continued his research on monetary policy, credit and housing markets.
He completed a research project with Neil Blake of OxfordEconomics for the European Commission on early warning indicators for EU and other housing markets. A key conclusion was that housing markets cannot be understood without taking credit availability and housing supply into account. This implies that IMF Economic Outlook estimates of house price over-valuation, which ignore these factors, are non-robust.
With Janine Aron, he completed two papers on the topical policy issue of repossession: one paper modelling and forecasting UK mortgage possessions and arrears; and another on regional court orders and claims for mortgage possession. This work was commissioned by the National Housing and Planning Advice Unit (NHPAU) and the Department for Communities and Local Government (DCLG). The key economic causes of mortgage possession are high debt service ratios, negative equity and unemployment, but loan quality and forbearance policy also matter. This work uses a 'latent variable' or 'unobserved component' estimated in a system of equations, together with institutional information to estimate the impact of loan quality and policy. The policy shift since 2008 has had a substantial effect in reducing possessions in the UK, which are running at less than one tenth of the foreclosure rate in the US. This research has been heavily used in government.
With John Duca and Anthony Murphy he completed a number of papers. These included a paper on housing, credit and the financial crisis, published in the Journal of Financial Stability. A paper on US house price determination forthcoming in the Economic Journal suggested at the end of 2009 that a final leg of US house price falls would be likely from mid-2010. A paper on US credit market architecture, consumption and debt suggested that structural changes in credit markets explained much of the historic fall in the US household saving rate. The model well explains the behaviour of US consumption during and since the financial crisis. A key feature is again to use a multiple equation setting to extract a 'latent variable' or 'unobserved component' measuring the shift in credit availability. A comparative paper with Janine Aron and Keiko Murata as further co-authors explains the disparate consumption behaviour of the US, UK and Japan in a common framework.
The latent variable technique was successfully used again in a paper with David Williams modelling house prices, mortgage debt, consumption and housing equity withdrawal in Australia. The shift in credit market architecture in Australia since the early 1980s explains much of the common fluctuations in these four observables. While Australia was high on the IMF list of countries with greatly overvalued house prices, there are few signs of the kinds of distress suffered by the US. Among the reasons are better financial regulation and hence the absence of poor quality sub-prime lending, better monetary policy which headed off excessive house price euphoria, the absence of a speculative building boom, and Australia's good economic fortune in riding the commodities boom fuelled by China and other emerging markets.
Central bank conferences and seminars featured this year included key-notes at the Netherlands Central Bank annual research conference in October 2009 and at the French Central Bank's conference on housing and credit in December 2009. The first of these was a critique based on John's BIS discussion paper of the fashionable macroeconomics of recent years as practiced by central banks. The second talk discussed the nature of 'housing wealth' effects on consumption. John also gave a Bundesbank-Center for Financial Studies joint lunchtime seminar on his critique of fashionable macroeconomics in November. He gave two talks at the ECB in April 2010. The first was at the two-day annual Monetary Policy Colloquium and addressed the uses of Flow of Funds information for monetary policy. In the second talk, he presented the paper with Duca and Murphy on credit market architecture and US consumption.
The paper with Janine Aron on UK mortgage possessions and arrears was presented at DCLG, NHPAU, the FSA, the Spatial Economics Research Centre annual conference, the European Economic Association conference in Glasgow and at Oxford's housing seminar.
Co-authors John Duca and Anthony Murphy also presented joint work with John at a number of international conferences including the Bank of Finland, Royal Economic Society, American Economic Association, and International Association of Research in Income and Wealth.
One visible sign of policy engagement was a post-election Guardian article highlighting the danger of continuing past housing policy errors: http://www.guardian.co.uk/commentisfree/2010/jun/24/britainhousing-market-budget-planning
At Nuffield, John co-organised an interdisciplinary seminar series on housing with Susan Bright of the Faculty of Law and Peter Kemp of the Dept. of Social Policy and Social Work. John continued to serve as Investment Bursar for the financial part of the Nuffield
College portfolio.
For DCLG he continued to serve on the expert panel for Housing Market Policy Analysis. He continued as a consultant to OxfordEconomics and as one of the Gerson Lehman Group?s international experts, continued to be consulted by managers of hedge funds and large investment funds.

Publications
(with J. Duca and A. Murphy) 'Housing Markets and the Financial Crisis of 2007-2009: Lessons for the Future', Journal of Financial Stability doi: 10.1016/j.jfs.2010.05.002

(with N. Blake) 'Imbalances in EU Housing Markets', Economic Outlook, 33(4), 19-25, 2009.

(with J. Aron) Modelling and forecasting UK mortgage arrears and possessions (NHPAU): Summary http://www.communities.gov.uk/publications/housing/modellingarrearssummary

(with J. Aron) Modelling and forecasting UK mortgage arrears and possessions (NHPAU): Report http://www.communities.gov.uk/publications/housing/modellingmortgagearrears

'Household Decisions, Credit Markets and the Macroeconomy: Implications for the Design of Central Bank Models', Bank for International Settlements, Discussion paper 306, March 2010.

Annual Report 2008-2009 (Expand/Collapse)

Annual Report 2008-2009 (2008-2009)

John Muellbauer (Official Fellow) continued his research on monetary policy, credit and housing markets and inflation, given an extra edge by his becoming the College's investment bursar for financial assets just as the international financial crisis reached its most serious phase. He took part in many conferences and other events connected with the crisis, during the year.
He discussed the financial crisis at the Department of Communities and Local Government (DCLG) Analysis Day in September 2008. In a talk at the Bank of England's Monetary Policy Roundtable in September 2008, he argued that his research implied the UK was already in recession. In articles for Economists’ Voice and VoxEU with Janine Aron, based on their research on forecasting US inflation, he forecast in Autumn 2008 that deflation was on its way in the US. In October, he and Janine Aron gave an invited talk at the South African Reserve Bank Governor's conference on monetary policy challenges for emerging markets. The paper, contributing new understandings of the inflation process in South Africa, has been published in a conference volume. In November, he presented a paper and served as discussant at the European Area Business Cycle Research Network conference in Barcelona. He criticised the tardy reactions of central banks to the crisis in articles in VoxEU and the Financial Times in October and November, proposing quantitative easing be added to their policy reactions.
In a December conference at the San Francisco Federal Reserve Bank, co-organised by Japan's Economic and Social Research Institute, he presented with Keiko Murata their research on land prices, consumption and monetary transmission in Japan that helps explain why policy was relatively ineffective in preventing Japan's 'lost decade'. This is forthcoming in an MIT Press book. At the American Economic Association meetings in January, he organised a session with John Duca of the Dallas Federal Reserve Bank on credit, consumption and housing markets, and gave a talk at the San Francisco Fed on forecasting US inflation. He was invited to visit the Fisher Real Estate Center of Haas Business School, University of California at Berkeley, and followed this as a Visiting Scholar at the International Monetary Fund for a week, giving seminars there. He was also invited to spend a day at the Federal Reserve Board in Washington to discuss housing and consumption research.
In March, he took part in Oxford's Saïd Business School conference on financial reform, and gave talks at the LSE and the Royal Economic Society annual conference at the University of Surrey. With the Warden, he discussed the UK housing crisis at the College seminar for the Stated Meeting of the Governing Body. In May, he spoke at the Spatial Economics Research Centre conference at the LSE, and in June, was invited to advise on macroeconomic research at Statistics Norway, where he gave two presentations. He was invited to speak at the Bank for International Settlements Annual conference in Basel. This conference is attended mainly by central bank governors, deputy governors and chief economists. This paper, to be published as a BIS discussion paper, contains a critique, backed by much empirical evidence, of contemporary macroeconomics, as latterly practiced by the Bank of England and other major central banks. He also presented this paper at the ESRC conference on the micro foundations of macroeconomics in July at the University of Warwick. He also spoke at the Financial Markets Group conference on Financial Regulation at the LSE in July.
Co-authors John Duca and Anthony Murphy also presented joint work with John at a number of other international conferences.
At Nuffield, John co-organised an interdisciplinary seminar series on housing with Susan Bright of the Faculty of Law and Peter Kemp of the Deptartment of Social Policy and Social Work.
This was also a year of intensive policy involvement in the UK, including with the Cabinet Office, the Chancellor, the Bank of England, the Treasury Select Committee and the Department of Communities and Local Government (DCLG) on the housing and credit crisis. For DCLG he continued to serve on the expert panel for Housing Market Policy Analysis, and with Janine Aron produced a comprehensive report on mortgage arrears and repossessions in the UK. He was commissioned by the European Commission to produce a report with Neil Blake of Oxfordeconomics.com on analytical methods for the identification of imbalances and risks in EU housing markets.

Publications
'Housing and Personal Wealth in a Global Context', in James B. Davies (ed.), Personal Wealth from a Global Perspective, UNU-WIDER Studies in Development Economics, Oxford University Press, October, 2008, pages 293-311.

(with J. Aron and J. Prinsloo) 'Estimating the Balance Sheet of the Personal Sector in an Emerging Market Country: SA, 1975-2005' in James B. Davies (ed.), Personal Wealth from a Global Perspective, UNUWIDER Studies in Development Economics, Oxford University Press, October, 2008, pages 196-223.

(with J. Aron) 'Some issues in modelling and forecasting inflation in SA.' Challenges for Monetary Policy-makers in Emerging Markets. South African Reserve Bank Conference Series, SARB, 2009, pp. 163-188.

(with J. Aron) 'Monetary Policy and Inflation Modeling in a More Open Economy in South Africa', Chapter 15 in New Monetary Policy Frameworks for Emerging Markets: Coping with the Challenges of Financial Globalization, Gill Hammond, Ravi Kanbur and Eswar Prasad (eds.), Bank of England/Edward Elgar (2009), pp. 275-308.

(with J. Aron) 'The Development of Transparent and Effective Monetary and Exchange Rate Policy.' Chapter 3 in Aron, J., B. Kahn and G. Kingdon (eds.) South African Economic Policy Under Democracy, Oxford University Press (March, 2009) , pp. 58-91.

(with J. Aron and C. Pretorius) 2009. 'A Stochastic Estimation Framework for Components of the South African Consumer Price Index.' South African Journal of Economics 77 (2), June: 282-313.

(with J. Aron) 'US price deflation on the way.' Centre for Economic Policy Research, London (Oct, 2008). http://www.voxeu.org/index.php?q=node/2384

'The folly of the central banks of Europe', (Oct, 2008). http://www.voxeu.org/index.php?q=node/2488

'The world's central banks must buy assets', Financial Times Nov 24, 2008.
(with J. Aron) 2009) 'US Deflation? New Methods of Forecasting Consumer Prices', Economic Outlook 33 (1): 33-45, January.

(with J. Aron) 2008. 'The Next Collapse: U.S. Price Inflation', The Economists’ Voice 5 (6), Article 9 (http://www.bepress.com/ev/vol5/iss6/art9). Also collected in Special Issue,
Financial Regulation, Financial Crisis, and Bailouts (eds. J. Stiglitz, B. Delong and A. Edlin), The Economists’ Voice 5 (5).

Annual Report 2007-2008 (Expand/Collapse)

Annual Report 2007-2008 (2007-2008)

John Muellbauer (Official Fellow) The international credit crunch and its fall-out on housing markets and consumption, housing and credit issues occupied much research and dissemination effort in 2007-8. John gave a Bank of England seminar in November, participated in a Bank of England workshop on housing and household credit in January 2008, an IMF roundtable in March 2008, a transatlantic debate on a similar theme at the Bank of Spain in May 2008, and gave related talks in Oxford and at the European Society European Meetings in Milan in August 2008.
With Anthony Murphy, a special issue of the Oxford Review of Economic Policy was edited on this topic with distinguished contributors, incorporating an overview of the interactions between housing and the wider economy. Tragically, Gavin Cameron, who helped plan this special issue, died just before the September 2007 conference, where first drafts were presented.
With John Duca of the Federal Reserve Bank, Dallas (Economics visitor in November, 2007) and Anthony Murphy, a paper was completed on the determination of US house prices. This suggested that, as of May 2008, the US house price correction was only around half complete, even on the assumption of stable real income levels. The explosion and subsequent collapse of sub-prime lending in the US account for a major part of recent US house price fluctuations. Joint research has continued on the regional dimensions of US house price dynamics.
With Keiko Murata of the Cabinet Office in Japan (Economics visitor in July), a paper was completed on why monetary policy in Japan was relatively ineffective. One reason is that, in the absence of UK or US style household credit markets, there is no housing collateral effect on consumption in Japan. Another is that with the huge liquid assets holdings of Japanese households, lower real interest rates tend to reduce household spending power. This was presented at the Economic and Social Research Institute (Cabinet Office of Japan) Workshop “Japan?s Bubble, Deflation and Long-term Stagnation” at Columbia University, New York in March and at the Dallas Federal Reserve Bank.
A paper was also completed with Anthony Murphy for the Department of Communities and Local Government, on international migration to and from the UK, establishing that some of these migration flows are sensitive to housing market conditions, as well as wider economic conditions and institutional and policy shifts.
Modelling and forecasting inflation under an ESRC grant was a major research theme this year the topicality of which in this inflationary year was not anticipated when making the funding application. Three papers were completed with Janine Aron. One takes the South African Reserve Bank?s model for producer prices and shows how it can be substantially improved by taking account of structural changes introduced by greater trade openness and in a more general model. This is to appear in a Bank of England volume on monetary policy in a more globalised world. A second paper also analyses inflation in South Africa, showing that forecasting the ten major components of the consumer price index separately and aggregating the forecasts tends to outperform a model for the overall index alone. In turn, our model for the latter outperforms simple autoregressive bench-mark models. These are notable results since the international literature agrees that the bench-mark models are very hard to beat in pseudo out of sample forecasting exercises. A paper on monthly US data finds broadly similar results, most strikingly on the very notable out-performance of our approach relative to benchmark models. The evidence on the benefits of forecasting the index components separately vs. forecasting the overall index is more mixed for the US: better for some information sets, worse for others. These papers begin to address the wider implications for methods of modelling and forecasting but an exciting research agenda remains. Related work on forecasting US output made considerable progress with the visit of Roland Meeks
(formerly British Academy Research Fellow at Nuffield and now at the Dallas Federal Reserve Bank).
John co-ordinated Oxford?s successful application with the LSE, Glasgow, Newcastle and Swansea for a national Spatial Economics Research Centre funded by the ESRC and co-funding from several government departments. Anthony Murphy, Stephen Nickell and Patricia Rice are the other Oxford participants.
Media contributions included the FT, VOXEU, the BBC World Service, BBC radio?s Today Programme, and Bloomberg television. John also continued to consult for the Department of Communities and Local Government, Oxford Economic Forecasting (now OxfordEconomics.com) and a range of hedge funds. John began his third stint as College investment bursar for the financial portfolio on August 1, 2008.

Publications
'Housing, Credit and Consumer Expenditure', in Housing, Housing Finance, and Monetary Policy: A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30-September 1, 2007. Kansas City: Federal Reserve Bank of Kansas City, 2008, pp. 267-334.

(with A. Murphy) 'Housing Markets and the Economy: The Assessment', Oxford Review of Economic Policy, 24, 1-33, 2008.

(with J. Aron) 'A Review of Monetary Policy in South Africa since 1994', Journal of African Economies, 16, 705-44, 2007.

(with J. Aron and J. Prinsloo) 'Estimating the Balance Sheet of the Personal Sector in an Emerging Market Country: South Africa, 1975-2003', in J.B. Davies (ed.), Personal Wealth from a Global Perspective. Oxford: Oxford University Press, 2008, pp. 196-223.

'Housing and Personal Wealth in a Global Context', in J.B. Davies (ed.), Personal Wealth from a Global Perspective. Oxford: Oxford University Press, 2008, pp. 293-311.

'Housing, Credit and the Economy', Economic Outlook, 31:4, 13-20, 2007.

Annual Report 2006-2007 (Expand/Collapse)

Annual Report 2006-2007 (2006-2007)

John Muellbauer (Official Fellow) devoted much of the year’s research to further work on the interactions between housing, credit and consumption, a subject made particularly topical by the sub-prime lending crisis in the US and its global ramifications. He was invited to address the annual symposium sponsored by the Federal Reserve Bank of Kansas City, this year on ‘Housing, Housing Finance, and Monetary Policy’ in Jackson Hole, Wyoming, August 31 and September 1. There he reported on US evidence suggesting that, as in the UK, there was no housing wealth or collateral effect on consumption before credit markets liberalised. However, the data suggests the housing collateral effect is about twice as large in the US as in the UK, and these differences appear to be linked to institutional differences between the two countries, e.g. in interest rate risk faced by borrowers. In both countries, credit market liberalisation lowered the rate of saving of households, though liberalisation
was a more gradual process in the US.
The Jackson Hole paper draws on multi-country research carried out this year on consumption and wealth under credit liberalisation: in the UK (a CEPR paper with Janine Aron and Anthony Murphy), in South Africa (a CEPR paper Janine Aron), and in Japan (ongoing work with Keiko Murata). John Duca, Senior Economist and Vice President at the Dallas Federal Reserve visited Nuffield in June and the work was extended to the US. The project with Anthony Murphy and John Duca is also examining the impact of credit and other factors on regional house prices in the US. Preliminary findings suggest that the UK may be relatively protected from house price falls by many years of low levels of house building, though UK house prices are also more sensitive to the stock market than is the US.
With Janine Aron, he completed a final stage of work on monetary policy in South Africa to be published in the Journal of African Economies, a CEPR paper on trade openness and inflation in South Africa, and another on the predictability of monetary policy in South Africa, presented at the Bank of England.
New research with Teng Teng Xu on forecasting US GDP, suggests that careful selection of a parsimonious forecasting model on a data set, e.g. from 1960 to 1984, is no guarantee of good subsequent out of sample forecasting performance. Models that throw away long run information tend to lose relative to naïve benchmarks. However, specifications close to those he introduced in a 1996 paper, retaining such information, tend to do better than naïve benchmarks. Nevertheless, practical forecasters have to be on constant guard against structural breaks, which, as David Hendry has long emphasised, are the bugbear of forecasting.
The ESRC project with Adrian Pagan, to which the above research contributed, ended in 2006, and a final report was produced. With Janine Aron, he was successful in obtaining an ESRC project: ‘New Methods for Forecasting Inflation and its Sub-components: Applications to the UK, USA and South Africa’.
Apart from Jackson Hole, seminar and conference presentations included HM Treasury; Oxford; LSE; the European Real Estate Society Conference in London; the Bank of Spain Conference on Housing and Finance, Madrid; and the Centre for the Study of African Economies conference in Oxford; while John’s co-authors also presented parts of the research at various other conferences, including at the Bank of England, and at the Royal Economic Society.

Publication
(with Janine Aron and Anthony Murphy) ‘Housing, Wealth Wealth and UK Consumption’, Economic Outlook, 30:4, 11-20, October 2006.

Annual Report 2004-2005 (Expand/Collapse)

Annual Report 2004-2005 (2004-2005)

John Muellbauer (Official Fellow) devoted a substantial part of the year’s research to the development with Gavin Cameron and Anthony Murphy of a regional model of house prices, labour markets and regional migration. This was the core part of a project on Housing Affordability commissioned by the Office of the Deputy Prime Minister and co-ordinated by Professor Geoff Meen of Reading. Altogether 14 economists from five Universities worked on this project, which began in November and produced a final report in May 2005. House price to earnings ratios now far exceed previous records in all regions of the UK. ODPM’s aim is to understand what will be the impact of expanding housing supply in the different regions on affordability, which they define by the ratio of the lower quartile of house prices to the lower quartile of individual earnings. This requires an understanding of all the important feedbacks. For example, if more house building in the South East largely attracts more migrants into the region, there may be little impact on affordability. This path-breaking model enables such questions to be answered. At the time of writing, the final report has not yet been released by ODPM, given the political sensitivities involved. However, a large amount of additional work towards completing a series of papers on regional employment and unemployment, regional migration (presented at a Departmental workshop) and the regional housing markets has been carried out.

John hosted several overseas visitors. The first of these was Keiko Murata from the Japanese Prime Minister’s Cabinet Office with whom John worked on several themes. The first was forecasting Japanese per capita GDP and household non-property income using methods developed as part of John’s ESRC continuing research programme with Adrian Pagan, ‘Improving Methods for Macroeconometric Modelling’. The second used these forecasts to help understand Japanese consumption and household saving behaviour. In turn, this has helped understand the monetary transmission mechanism in Japan.

Unlike the UK, the consumption function for Japan shows a negative real land price effect: when real land prices rise, young households and other renters have to save more. This dominates the wealth effect for older households, partly because of the inheritance tax advantages in Japan of leaving housing assets to one’s children. Other factors include the relatively uncompetitive nature of the banking sector in Japan, as well as Japanese attitudes to risk. The demand stimulus from lower short-term rates is thus far less in Japan than the UK.

Professor Ben Smit, Director of the Bureau of Economic Research, South Africa’s premier national economic research institute, came to work with John and Janine Aron on a DfID funded project. Progress was made on a small model for South Africa to evaluate policy related questions, such as measuring the speed of pass-through from the exchange rate into consumer prices, and evaluating the impact of the shift in the terms of trade on the exchange rate. Johan Prinsloo, from the South African Reserve Bank was another visitor and John and Janine worked with him on a return visit to the Reserve Bank on incorporating household sector wealth estimates for the first time into South Africa’s national accounts. For the same DFID project, Janine and John completed a 70 page evaluation of monetary policy in South Africa in the first decade of democratic rule. South Africa introduced inflation targeting in 2000 and there are many signs of improvements in policy transparency and predictability. Though policy was put under strain by the exchange rate volatility of 2001-2, interest rate policy performed well given the information at the Reserve Bank’s disposal. However, South Africa was not well served by serious data errors, which led to consumer headline inflation being overstated by 2.3 percent by March 2003. Janine and John published an article on problems in measuring inflation in South Africa. In the absence of a handbook published by Statistics South Africa, this involved detective work of amazing complexity.

Regarding the ESRC project mentioned above, further progress was made with Luca Nunziata, forecasting GDP growth one year ahead in the G7 countries. Heiko Hesse contributed to the German model. There are many satisfying parallels in the role of asset prices, interest rates and oil prices in the different countries, but also signs that institutional differences matter. In the course of the year, Luca Nunziata took up an appointment as Associate Professor at the University of Padua. The project is fortunate that Anthony Murphy, Senior Lecturer in Economics at University College, Dublin will be able to work join it for the last 12 months.

This year also saw the completion of final drafts of four DPhils supervised by John, one successfully examined, three to be examined in Michaelmas, 2005. The disruption (and ultimate pleasure) of moving house contributed to making this a busy year. John continued as chair of the Economics Group at Nuffield and interviewed PPRF candidates for the College and the Department at the AEA meetings in Philadelphia. He continued as MPhil macro co-ordinator. He served as consultant to Oxford Economic Forecasting. He spoke at a number of conferences, in particular on the themes of credit markets, and property taxation.

Publications

(with Janine Aron) ‘Construction of CPIX Data for Forecasting and Modelling in South Africa’, South African Journal of Economics, 72, 5, 1-30, 2004.

‘Property Taxation and the Economy after the Barker Review’, The Economic Journal, 115, 502, 99-117, 2005.

‘UK Household Debt: A Threat to Growth or Stability?’, Economic Outlook, 29, 1, 5-10, 2005.

(with Gavin Cameron and Anthony Murphy) ‘Migration Within England and Wales and the Housing Market’, Economic Outlook, 29, 3, 9-19, 2005.

(with Gavin Cameron) ‘Why Do Employment Rates Differ Across the Regions of Britain?’, Economic Outlook, 28, 5, 14-22, 2004.

Annual Report 2003-2004 (Expand/Collapse)

Annual Report 2003-2004 (2003-2004)

John Muellbauer (Official Fellow) served as a consultant to the Barker Review of Housing Supply, helping to edit the Interim Report published in December 2003 and took part in a number of meetings at the Treasury and the Office of the Deputy Prime Minister. John gave presentations on this theme and policy options for stabilising the housing market to the British Property Federation annual conference, Brighton, the Joseph Rowntree Foundation, the Royal Economic Society Conference, Swansea, the European Network of Housing Research conference in Cambridge and to the European Central Bank. He also took part in several media and other public discussions of the issues.
A paper with Luca Nunziata extending earlier research on forecasting the US business cycle finally appeared as a CEPR discussion paper. The methods presented are strikingly better at forecasting business cycle turning points than standard methods and the Survey of Professional Forecasters. An early version was presented at the Federal Reserve Board in Washington as a Visiting Scholar, along with a paper on UK credit conditions. Work began on extending the approach to the rest of the G7 economies. Already, interesting differences between economies in the impacts of asset prices have come to light.
Joint research with Gavin Cameron on regional differentials in UK labour markets and on mortgage arrears continued. The website housingoutlook.co.uk continues to attract attention.
A presentation based on work with Olympia Bover of the Bank of Spain on measurement issue in international house price indices and their implications for central banks was presented at a European Central Bank/Bank of Spain/CEPR conference in Madrid.
Work with Justin van den Ven on deducing the attitudes of governments to households of different types by examining tax and benefit systems reached completion. The evidence suggests the Australian government treats households of different types fairly consistently. Preliminary evidence for the UK suggests that this is not the case here.
Research on South Africa with Janine Aron has continued under the third consecutive grant from DFID, beginning in October 2003. South Africa began inflation targeting in 2000. Four new working papers were produced this year. The first is a multi-equation inflation model of the inflation process in South Africa, which helps explain the speed and extent of exchange rate pass-through, and the various channels of monetary transmission. Inflation is a far from homogeneous phenomenon, a fact ignored in most work on consumer price inflation. A second paper uses a novel methodology grounded in theory, to model the ten sub-components of the consumer price index (excluding mortgage interest rates, or CPIX) for South Africa.
While the CPIX measure became relevant to monetary policy setting and wage contracts only from 2000, and is published monthly only from 1997, a far longer time series is required for the forecasting and modeling exercises of the South African Reserve Bank (SARB), National Treasury and others. In a third paper, previously unavailable estimates of CPIX back to 1970, were produced on a consistent methodology, using monthly price indices, the appropriate weights, and linking correctly when rebasing. This paper contains the only technical account of the methodology of construction of the consumer price index (CPI) and CPIX by Statistics South Africa, in the absence of any published official technical bulletins.
The fourth paper constructs the first coherent set of aggregate, personal sector wealth estimates at market value for South Africa. This research has lead to joint work with the SARB, with a senior economist visiting Nuffield in September, 2004. Extending this work, the resulting measures of net total wealth and liquid and illiquid wealth are planned to be published regularly in the Quarterly Bulletin of the SARB, and used in their macro-model for the first time.
Presentations from this project were given at the IMF, the South African Reserve Bank, the South African Treasury, various South African universities and the Economic Association of South Africa, as well as in seminars in Oxford and at the Econometric Society Meetings in Madrid.
John was chair of the Economics Group at Nuffield and interviewed PPRF candidates for the College and the Department at the AEA meetings in San Diego.
Publication
(with Justin van de Ven) ‘Equivalence Scales and Taxation’, in C Dagum and G Ferrari (eds.), Household Behaviour, Equivalence Scales, Welfare and Poverty. New York: Physica Verlag, 2003, pp 85-106.

Annual Report 2002-2003 (Expand/Collapse)

Annual Report 2002-2003 (2002-2003)

John Muellbauer (Official Fellow). Two funding applications were successful this year. The first was to the Economic and Social Research Council (ESRC) for a three-year project with Adrian Pagan, with the theme: ‘New Methods for Improving Macroeconomic Modelling’. The second, with Janine Aron, was to the Department for International Development (DFID), which has funded three consecutive grants on macro-economic research in South Africa, spanning nearly seven years. The aim is to complete the South African research programme in the current project: ‘Monetary Policy Growth and Stability in Sub-Saharan Africa’. A new website was added to the Departmental website, with research papers (and non-technical summaries) for these DFID projects.
John served as a consultant to the background work for the Treasury’s ‘Five Economic Tests’, and submitted his own paper as part of the invited submissions from academics. The case he has developed over some years emerged as the centre-piece of the Treasury’s argument for delaying entry – that institutional features of the UK’s credit and housing markets are a major impediment to adoption of the Euro. He gave evidence to the ‘Barker Review of the supply of housing in the UK’; and has participated in various related meetings with Treasury economists. He also spoke on policy issues and the housing market outlook at conferences organized by Oxford Economic Forecasting and Merrill Lynch, and in the media.
Work continued with Luca Nunziata on the ESRC grant extending earlier research on forecasting the US business cycle. Joint research continued with Gavin Cameron on regional differentials in UK labour markets, and with Justin van den Ven on taxation and equivalence scales. A paper for the Bank of England, with Emilio Fernadez-Corugedo, on constructing a consumer credit conditions index for the UK, was revised to its final version, and presented at the Money, Macro and Finance Conference in Cambridge in September.
The South African research component focused on modelling and forecasting inflation using novel techniques. A seven-equation model of the inflation process was developed in a joint paper with Janine Aron and Ben Smit (Bureau of Economic Research, South Africa), and presented at the South African Reserve Bank and as a keynote address at the African Econometrics Society Meeting in July. This research gives important insights into the monetary policy transmission mechanism, taking care to address changing economic and policy regimes in South Africa. With further development in the current project, it will be possible to estimate more rigorously than hitherto, the degree of ‘pass-through’ of exchange rate shocks into inflation. A second paper with Janine Aron and Coen Pretorius (South African Reserve Bank), also recently presented in South Africa, uses an innovative approach to forecasting the sub-components of the consumer price index. A joint paper is being prepared with Johan Prinsloo (South African Reserve Bank), examining the feasibility of adding national balance sheets to the flow of funds already produced by the Reserve Bank. Contact with the Office of National Statistics was very helpful in this regard. The aim is to link these measures to the historical personal sector wealth estimates constructed in a recently revised paper with Janine Aron, to provide long series on wealth stocks. Such measures prove very important in modelling consumption and money demand in South Africa.
Publications
(with Janine Aron) ‘Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa’, IMF Staff Papers, 49, 185-213, 2002.
‘The UK and the Euro – the Role of Asymmetries in Housing and Credit Markets’, in Submissions on EMU from Leading Academics, HM Treasury, June, 185-196, 2003.
‘The UK and EMU: Lessons from Europe’, Economic Outlook, 27, Winter, 13-21, 2003.
‘Housing, Credit and the Euro: the Policy Response’, Economic Outlook, 27, Summer, 5-13, 2003.

Annual Report 2001-2002 (Expand/Collapse)

Annual Report 2001-2002 (2001-2002)

John Muellbauer (Official Fellow). The ESRC-supported project held jointly with David Hendry and Bent Nielsen, ‘Modelling Non-stationarity in Economic Time Series’ was completed at the end of 2001 and was awarded an ‘outstanding’ grade by the ESRC. An application to the ESRC for a new 3-year project with Bent Nielsen, Gavin Cameron, David Hendry and Adrian Pagan was submitted. The theme of the new proposal is ‘New Methods for Improving Macroeconomic Modelling’. Work continued on the two-year project with Janine Aron funded by the Department for International Development (DfID): ‘Governance and Inflation Targeting in South Africa for Sustainable Growth’. This involves further modelling of the inflation process in South Africa, an examination of the efficiency of possible monetary policy rules and improvements in institutional design. An innovative feature of our inflation forecasting work with the South African Reserve Bank is to model the components of inflation to improve the overall inflation forecast. This has proved highly topical, given the exchange rate and food-price inspired inflation burst in South Africa in 2002. With Chris Adam, Janine Aron, and David Bevan, John applied to DfID for a 5-year Development Research Centre on the macroeconomics of low-income countries (to be based at Oxford’s Economics Department).
An invited paper with Janine Aron on forecasting growth in South Africa one year ahead, exploring the impact of interest rates on output, was presented at the IMF’s 2nd Annual Research Conference and is to appear in IMF Staff Papers. Work continued with Luca Nunziata on a quarterly version of a US GDP forecasting paper. Work also continued with Gavin Cameron on several U.K. housing market issues, including mortgage defaults.
This year saw the completion of a project for the Bank of England with Emilio Fernandez-Corugedo on consumer credit and mortgage markets in the UK. Major structural changes have taken place in these markets since the late 1970’s, resulting in much higher loan-to-value and loan-to-income ratios becoming available for mortgage borrowers. Correspondingly, these have allowed the ratios of consumer credit and mortgage debt to household income to rise strongly. We use micro data from the Survey of Mortgage Lenders and data on household debt aggregates to extract a non-price credit conditions index, after controlling for many economic and demographic influences on credit. This index is likely to prove important in explaining other features of personal sector behaviour: consumer spending, the demand for broad money, house prices and housing market turnover, and mortgage default rates. As argued in a keynote talk at the Vienna conference of the European Housing Research Network, these changes in UK credit conditions are the temporal expression of some of the basic cross-country institutional differences between the UK and core Eurozone economies, which are liable to prove problematic for the UK’s adoption of the Euro, and are already a source of tension for the common monetary policy between some members of the Eurozone.
New research with Justin van de Ven examined the question of how to identify in principle and estimate in practice, the equivalence scales implicit in a country’s tax and benefit system. Equivalence scales are used in studies of income inequality and redistribution to adjust income levels of households of different compositions to a comparable basis. It is often argued that equivalence scales are incompatible with social benefit and tax regimes used in many countries, but this is not the case in our framework.
John contributed to a seminar of the Cabinet Office’s Performance and Innovation Unit on geographical mobility, and was invited to comment on preparatory work by the Treasury on the five economic tests for EMU.
John completed his second year as college investment bursar for the non-property portfolio in one of the most trying periods for equity markets since the Second World War.
Research papers were presented at the Bank of England, the South African Reserve Bank, at Oxford, several Oxford Economic Forecasting conferences and at the European Meetings of the Econometric Society in Venice, as well as the ENHR and IMF conferences already mentioned.
Publications
(with Gavin Cameron and Jonathan Snicker), ‘A Study in Structural Change: Relative Earnings in Wales Since the 1970s’, Regional Studies, 36, 2002.
‘Mortgage Credit Conditions in the UK’, in Economic Outlook. Oxford: LBS/OEF, 2002.

Professor John Muellbauer is an Official Fellow of Nuffield College, Professor of Economics and a James Martin Senior Fellow, Oxford University. He is a Fellow of the British Academy, of the Econometric Society and of the European Economic Association and a CEPR Research Fellow. He has been a consultant to the Bank of England, HM Treasury and the Department for Communities and Local Government (DCLG). He has been a Visiting Scholar at the Federal Reserve and the IMF. He is currently Investment Bursar at Nuffield College, with responsibility for the non-property side of the portfolio. He is a regular contributor of articles and talks for Oxford Economics (formerly Oxford Economic Forecasting) and is frequently consulted by banks, hedge funds and asset management companies.

His current research is supported by the Spatial Economics Research Centre, funded by the ESRC and a number of government departments, and by the Institute for Economic Modelling, headed by Sir David Hendry and jointly funded by the James Martin School and by the Institute for New Economic Thinking, founded by George Soros. Recent work includes research with Janine Aron for the National Housing and Planning Advisory Unit and DCLG on mortgage arrears and possessions in the UK, with Neil Blake for the European Commission on imbalances in EU housing markets, with John Duca and Anthony Murphy, both at the Dallas Federal Reserve, on lessons from the role of housing in the financial crisis, on what drives US house prices, and on the implications of the long-term shift in US credit market architecture, and a Bank for International Settlements discussion paper on problems with modern macroeconomics. In 2009-10 he gave talks among others at the IMF, ECB, Federal Reserve, BIS, Statistics Norway, de Nederlandsche Bank, Banque de France, Bank of England, the European Commission, the Financial Services Authority, DCLG and HM Treasury.

Before coming to Nuffield College in 1981, John was Professor of Economics at Birkbeck College, London, and Lecturer at Warwick University. He obtained his first degree from Cambridge University, England and his Doctorate from the University of California, Berkeley (supervisor, Robert E. Hall). His secondary education was at Pontywaun Grammar School, Risca, Gwent and at Walpole Grammar School, London W13.

Downloadable research papers

"Consumption, Land Prices and the Monetary Transmission Mechanism in Japan." Chapter in Japan's Bubble, Deflation and Long-term Stagnation. (forthcoming MIT Press 2009, published via the ESRI, Cabinet Office, Japan). (with Keiko Murata, Cabinet Office, Japan). [For conference, San Francisco Federal Reserve, 11-12 December, 2008] [Earlier workshop: a joint ESRI/Center on Japanese Economy and Business, on Japan’s lost decade, Columbia University, March 21, 2008.]

“US House Price and Credit Constraints.” (with John Duca, Federal Reserve). CEPR and European Area Business Cycle Network, Pompeu Fabra, Barcelona, 22nd November, 2008.

Special Issue on Housing Markets and the Economy, Oxford Review of Economic Policy, Oxford University Press 24(1), 2008. (Guest Editor with A. Murphy) & "The Assessment: Housing Markets and the Economy.” in Muellbauer, J. and A. Murphy (Guest Eds.) Special Issue on Housing Markets and the Economy, Oxford Review of Economic Policy, Oxford University Press 24(1): 1-33, 2008.

"Housing and Personal Wealth in a Global Context." Chapter in James B. Davies (ed.), Personal Wealth from a Global Perspective, UNU-WIDER Studies in Development Economics, Oxford University Press, October, 2008, pages 293-311. (also, United Nations University, WIDER Research Paper 2007-27, November, Helsinki).

"Housing, Credit and Consumer Expenditure." in ) Housing, Housing Finance, and Monetary Policy, A Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30 - September 1, 2007, pages 267-334. Annual series: Federal Reserve Bank of Kansas City.

‘Equivalence Scales and Taxation’, in C.Dagum and G.Ferrari (eds), Household Behaviour, Equivalence Scales, Welfare and Poverty. New York: Physica Verlag, 2003, p85-106. (with J. van de Ven)

Economic Outlook Articles (OEF), Policy Related Reports/Papers

Aron, J. and J. Muellbauer. 2009. "US Deflation? New Methods of Forecasting Consumer Prices." Economic Outlook (forthcoming February 2009).

“Property Taxation and the Economy.” in Land Value Tax: worth the transition? (eds) Dominic Maxwell and Anthony Vigor, Institute for Public Policy Research, 2005.

South African Research on Monetary Policy and Macroeconomics

"Some issues in modelling and forecasting inflation in SA.” Chapter in Challenges for Monetary Policy-makers in Emerging Markets." (forthcoming 2009, published by the SA Reserve Bank). (with J. Aron).

"Monetary Policy and Inflation Modeling in a More Open Economy in South Africa." Chapter in New Monetary Policy Frameworks for Emerging Markets: Coping with the Challenges of Financial Globalization, Gill Hammond, Ravi Kanbur and Eswar Prasad (eds.), Bank of England/Edward Elgar (forthcoming, 2009). (with J.Aron). (also CSAE Working Paper 2008-28, Department of Economics, Oxford, or CEPR Discussion Paper 6992, London, 2008)

"The Development of Transparent and Effective Monetary and Exchange Rate Policy." Chapter 3 in Aron, J., B. Kahn and G. Kingdon (eds.) South African Economic Policy Under Democracy, Oxford University Press (forthcoming, March, 2009). (with J.Aron).

Research Interests

Annual Reports

Biographical Sketch

Downloadable research papers

Media Articles and Talks

UK and International Papers

Economic Outlook Articles (OEF), Policy Related Reports/Papers

South African Research on Monetary Policy and Macroeconomics


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