Western Economic Association Presentation: Debt & House Prices
The USA’s Western Economic Association International holds a Pacific Rim conference every two years, and this year the host was the Queensland University of Technology in Brisbane, Australia.
I spoke in two sessions on what Americans call “The Great Recession” and Australians calls the “GFC”–the Global Financial Crisis. The first session had two other papers of interest to readers of this blog: a paper on house prices by Jakob Madsen, one of the “Bezemer Twelve” who predicted and warned of the impending crisis, and another on the dangers inherent in Australia’s high level of foreign debt by QUT’s Mark McGovern.
My screen recording software stuffed up–the sound was fine, but it recorded the blank screensaver rather than the slides. To make amends I redid my presentation, using the sound recording and trying to sync it with the audio (with only partial success! The timing is slightly out–my voice runs ahead of the slides).
A similar stuff-up applied in the second session–I disconnected the projector before saving the recording, and the program crashed. So I will do the same for that presentation–re-record it and post it here–but unfortunately I have no record of the discussions.
Before these hassles, I had planned to post all videos in one blog entry; now I’ll just post the first session here. The screen capture of my talk for the second session will have to wait till I have time to re-do it on the weekend.
My presentation on the statistical dynamics of debt
Unfortunately I couldn’t do that with Mark and Jakob’s papers, but the audio below is complete, from Jakob’s paper through to mine. However for some reason I can’t get that to play on my PC! I’ll leave it here for now and publish, and see if the hassle can be sorted out later.
Madsen on house prices, McGovern and Keen on debt (probably won’t run! Sleuthing apreciated)
Madsen on house prices, McGovern & Keen on debt
Papers and presentations from session one:
My presentation “More on the GFC: Prelude to a Monetary Minsky Model of the Great Moderation and the Great Recession”
Jakob Madsen “A Repayment Model of House Prices”
Mark McGovern “Beyond the Debt Dreamtime: Defusing and Resolving Crisis”
Discussion (7) ¬
Steve,
I know what you mean but r^2=-0.7 doesn’t look right. How about r^2=0.7 (negative correlation)?
Debt goes up, unemployment goes down djc–a negative correlation.
When I use employment data, it’s a positive correlation.
Sure, but when r is negative r^2 is positive.
BTW, I was watching a presentation by Jim Rickards where he used a car careering down an icy road as a metaphor for an economy about to go out of control. He argues for a nonlinear systems approach (but I can’t see where he’s actually done any) and points out what a poor understanding you get of what’s about to happen by a series of snapshots, by which he means conventional economics. Taking the metaphor a step further I was thinking that as a passenger I would prefer at the wheel a skilled rally driver rather than a systems engineer. The trouble with economies is that while economic history might have lots of lessons it’s a bit hard for the people driving to get much real time experience.
So that set me wondering whether your work could be best developed and presented as an Economy Simulator. So not trying to predict the future course of economies but presenting scenarios where would-be drivers can get some idea of the kind of thing that might happen as a consequence of possible policy decisions. Just a thought …
I’m using R^2 as a shorthand djc: i mean the correlation coefficient, which ranges from -1.0 to +1.0.
And yes, that’s precisely what QED does, and I’m now arranging funding to produce several further renditions of that basic concept–one in Mathematica and the other hopefully as a native simulation program, but possibly as an extension to Vissim.
Hi Steve,
I just spent this morning studying these two outstanding research papers, still need more time to digest them, but buyers’ behaviour described in Dr Madsen’s model (p11 – p15) especially caught my eyes.
“A significant fraction of house buyers
(1) focus on the initial cost of housing and disregard the payment over the whole time-span of the loan;
(2) disregard the potential adverse effects of increasing interest rates on flexible rate loans;
(3) suffer from inflation illusion; and
(4) react to price level incentives.”
They are worth a read. Thanks.
Steve,
You need to speak more slowly.