Thanks for the post, wouldn't it be interesting to look at it from a Minsky perspective where falling asset prices are the root cause of a debt-deflation spiral now China faces?
Thanks for your comment. I think the ultimate issue comes down to expectations of future income growth as opposed to asset prices.
Keep in mind, when house prices were rising, wealth effect and associated increased propensity to consume was offset by the crowding out effect (people needing to save up to buy houses) of higher prices. As such, when this reverses, the effect reverses.
In this framework, the policy pivot happened because deflating asset prices and deflation was starting to impact wage growth and hiring (you can see this in the high frequency data).
Thanks for the post, wouldn't it be interesting to look at it from a Minsky perspective where falling asset prices are the root cause of a debt-deflation spiral now China faces?
Thanks for your comment. I think the ultimate issue comes down to expectations of future income growth as opposed to asset prices.
Keep in mind, when house prices were rising, wealth effect and associated increased propensity to consume was offset by the crowding out effect (people needing to save up to buy houses) of higher prices. As such, when this reverses, the effect reverses.
In this framework, the policy pivot happened because deflating asset prices and deflation was starting to impact wage growth and hiring (you can see this in the high frequency data).