Central banks and house prices in the run-up to the crisis

The financial crisis and the role played within it by fluctuations in house prices has reopened the debate about whether monetary policy should respond to asset prices. This paper investigates how the central banks of the euro area, the UK and the US considered, understood and responded to the trends in house prices in the six or seven years preceding the crisis, and how they have analysed those developments since the crisis. It suggests that these central banks, particularly the Anglo-Saxon ones, might have been able to take some useful action if they had devoted more intellectual resources to analysing the possible misalignments of house prices and been willing to act on them.

Keeping Up with the Joneses: Who Loses Out?

This paper investigates how well-being varies with individual wage rates when individuals care about relative consumption and so there are Veblen effects – Keeping up with the Joneses – leading individuals to over-work. In the case where individuals compare themselves with their peers – those with the same wage-rate - it is shown that Keeping up with the Joneses leads some individuals to work who otherwise would have chosen not to. Moreover for these individuals well-being is a decreasing function of the wage rate - contrary to standard theory. So those who are worst-off in society are no longer those on the lowest wage.