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An article published today in the Reserve Bank Bulletin reviewed the policy responses by overseas central banks to house-price collapses. It was originally written by a contracted researcher, Maitland MacFarlan, as part of the Bank’s general consideration of risks around housing markets.
The article considers several episodes of house price collapses around the globe over the last 30 years, a period that encompasses the Nordic financial crises that began in the late 1980s, the Asian financial crisis of the late 1990s, and the more recent global financial crisis (GFC). The paper focuses on the policy responses to these problems and lessons that current policy makers can derive from these experiences.
The article observes a strong association between housing busts and banking crises, while noting that not all housing busts lead to a more generalised financial crisis, and not all financial crises are accompanied by house price collapses. Housing market crashes have highlighted the need for borrowers and lenders to take more forward-looking, longer-term perspectives on their exposure to market developments.
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