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The papers does not mention France, the figure Brad refers to is probably Figure 4 page 6, which is using proxyes, not very convincing to me.

by Laurent GUERBY on Tue Aug 29th, 2006 at 02:07:28 PM EST
Gros's interest is in a direct comparison witht he US, and to that end he averages out Eurozone house prices and says they are following US fairly closely. This is what he says about the economic effect of the rise:

The key reason why US housing prices have attracted so much attention is that a property price
crash or just a deceleration of the rate of increase of housing prices in the US would almost certainly weaken private consumption through wealth effects and ncreased uncertainty about the economic outlook. This is well known, but the data presented here imply that the same
danger exists for the euro area. In the euro area, the wealth effect might be less strong and consumers might be less indebted, but a fall in housing prices could instead also lead to an abrupt fall of new construction investment. Moreover, a fall in housing prices may jeopardise a part of the outstanding loans of the banking sector and force banks to raise reserves. This could reduce their willingness to extend credit to businesses and consumers. While the exact details of the transmission mechanism are different on the two sides of the Atlantic, it is clear that both sides face a quite similar risk.

Substantially, he's saying there would be:

  • a drop in contruction investment;
  • tightening of credit;

but not:

  • a hit on the "wealth effect";
  • a consumer debt problem.

I don't see how that is equivalent to a "quite similar risk".

He also doesn't address why consumer demand has only risen recently, while the property market has been booming for some years.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 29th, 2006 at 02:39:28 PM EST
[ Parent ]
I've posted links to graphs of french data on Brad's blog:


Brad, Daniel Gros doesn't mention France, and I find his proxy graph (only data point where France is) unconvincing.

When I look at first page of this document from Credit Agricole, there's a consumption growth graph 1995-2006 for France:

http://www.credit-agricole.fr/IMG/pdf/EF060707.pdf

It was 4% growth during 98-2000 stock buble, but since then it went down to 2-2.5% a year.

About housing prices, still from Credit Agricole, page 2 there's a housing price graph for 1995-2006:

http://www.credit-agricole.fr/IMG/pdf/EI_060713.pdf

I find no obvious correlation with consumption growth in the French case.

No plausible mecanism in the french case and no correlation in the french data.

We'll see what the future holds :).

by Laurent GUERBY on Tue Aug 29th, 2006 at 03:32:51 PM EST
[ Parent ]

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