1. Internal imbalances
ESTP course - MIP Luxembourg 1-3 December 2015 Oana Simene

2. House Price Index

3. Short overview: Eurostat HPI:
price changes of all residential properties (new & existing) purchased by households
independently of their final use and their previous owners
only market prices (self-built dwellings excluded)
land component included

4. Short overview: Headline indicator: Auxiliary indicators:
year-on-year growth rate of the deflated HPI
Eurostat consumption deflator – to reflect the value of house prices relative to the whole consumption basket
Indicative threshold: +6%
Source: Eurostat (Price Statistics/NA)
Auxiliary indicators:
3 years % change of nominal HPI
Residential construction as % of GDP
The scoreboard indicator is calculated using the formula: [((HPIt / DEFLt ) – (HPIt-1 / DEFLt-1)) / (HPIt-1 / DEFLt-1)]*100.

5. Economic rationale:
Traditionally, large movements in real assets market were associated with economic crises
Booms and busts in housing markets affect real economy through a variety of channels => important source of macroeconomic imbalances
Real asset prices are correlated with:
Large movements in monetary and credit aggregates
Household consumption(wealth effect)
Inter-sectorial substitution effect

6. Issues
Past periods are not entirely covered (some series rather short, starting in 2009)
Data available for some past periods from other sources (NCB, ECB, BIS, OECD)
For 5 MSs missing annual figures were backcasted by MIP Team (ES, CY, LV, LT, MT)

7. Before: HPI headline - 2013 MIP exercise
Issues
Before: HPI headline MIP exercise

8. After: HPI headline – 2014 MIP exercise
Issues
After: HPI headline – 2014 MIP exercise na
enhanced

9. House prices grow faster than consumer spending
Source: Eurostat(data as of 16 Nov)

10. Source: Eurostat(data as of 17 Nov)

11. House Prices(deflated) 2008,2011 and 2013 (index 2000 = 100, u.o.i.)
Source: AMR 2015

12. Private Sector Debt consolidated

13. Short overview Headline indicator: Auxiliary indicator:
Expressed in % GDP (stock of liabilities at the end of the year)
Instruments: debt securities and loans (F3+F4)
Indicative threshold: +133%
Source: Eurostat (NA --> FA)
Auxiliary indicator:
Private debt as % of GDP – non consolidated
The scoreboard indicator is calculated using the formula: PSDt/GDPt * 100
Measuring the debt of the non-financial private sectors (non-financial corporations plus households and NPISH)

14. Short overview Consolidated data:
Describe each sector as a single economic entity
Reflect the amount of funds that the sector receives from other sectors
Financial derivatives: excluded since 2013
Improve data comparability
Capture liabilities contracted as funding sources
Pension schemes: not included because of the heterogeneity of social protection systems across Member States

15. Economic rationale
Excessively high private sector debt implies risks for growth and financial stability and increases the vulnerability to economic shocks
Private debt developments allow for an assessment of the private sector vulnerability to changes in the business cycle, inflation and the interest rate

16. Source: Eurostat(data as of 17 Nov)

17. Source: Eurostat(data as of 17 Nov)

18. Private sector debt, % of GDP 2008/2014
Indicator flashes for 13
countries

19. Private Sector Credit Flow consolidated

20. Short overview: Headline indicator:
Expressed in % GDP
Flow counterpart of private sector debt (net, along the year)
Instruments: debt securities and loans (F3+F4)
Indicative threshold: +14%
Source: Eurostat (NA --> FA)
The scoreboard indicator is calculated using the formula: PSCFt/GDPt * 100
Consolidated data available in 2013
Financial derivatives: excluded since 2013

21. Economic rationale:
High credit flows – practice indicates it as one of the best indicators to predict crises incidence early on, both in emerging ad in advanced economies
Large credit fluctuations are often associated with:
Potential banking system vulnerabilities
Boom and bust cycles in asset markets
House price bubbles
Current account imbalances

22. Source: Eurostat(data as of 17 Nov)

23. Source: Eurostat(data as of 17 Nov)

24. General Government Debt

25. currency and deposits (AF.2) + debt securities (AF.3) + loans (AF.4)
Short overview:
Headline indicator:
Expressed in % GDP
Indicative threshold: +60%
Source: Eurostat (GFS)
The scoreboard indicator is calculated using the formula: GGDt/GDPt * 100
The outstanding amount of the debt is calculated from the following ESA 2010 categories:
currency and deposits (AF.2) + debt securities (AF.3) + loans (AF.4)

26. Short overview:
Maastricht Treaty definition: consolidated GGGD of the whole general government sector at nominal value, outstanding at the end of the year (EDP and SGP)
GGD comprises central government, state government, local government, and social security funds
Data for the general government sector are consolidated between sub-sectors at the national level

27. Economic rationale:
Overall picture of the indebtedness of a Member State (important linkages between private sector debt and general government debt)
A high level of general government debt increases the vulnerability of a Member State and weakens its room of manoeuvre to deal with crisis situations

28. Source: Eurostat(data as of 17 Nov)

29. Source: Eurostat(data as of 17 Nov)

30. General Government Debt, % of GDP 2008/2014
Indicator flashes for 16 countries

31. Total financial sector liabilities

32. Short overview: Headline indicator: Auxiliary indicator:
Expressed as year-on-year growth rate
Indicative threshold: +16.5%
Source: Eurostat (NA --> FA)
Auxiliary indicator:
Financial sector leverage (debt-to-equity ratio)
The instruments that are taken into account (ESA2010):
F.2 - Currency and deposits
F.3 - Debt securities
F.4 - Loans
F.5 - Equity and investment fund shares or units
F.6 - Insurance, pensions and standardised guarantee schemes
F.7 - Financial derivatives and employee stock options
F.8 - Other accounts payable

33. Economic rationale:
Aims at measuring the evolution of the sum of all liabilities of the total financial sector to capture its linkages with the real economy
A very broad measure of the expansion of the exposure to potential risks in the financial sector
Good early-warning qualities
Provides a fairly reliable basis for comparison among Member States
The indicator is not specific to the business model of a specific subsector

34. Source: Eurostat(data as of 17 Nov)

35. Source: Eurostat(data as of 17 Nov)

36. Connecting the dots
Source: Eurostat(data as of 17 Nov)

37. Connecting the dots
Source: Eurostat(data as of 18
Nov)

38. Connecting the dots
Source: Eurostat(data as of 17 Nov)

39. Non-performing loans ratios
Source: AMR 2016

40. Now that everything is crystal clear…
… we THANK YOU for your attention! 