Hutchins Roundup: Housing prices, insurance companies, and more

Thursday, January 12, 2017

Studies in this week’s Hutchins Roundup find that speculation in the market for undeveloped land explains the pre-recession housing boom, insurers with significant market shares can negotiate lower prices with providers, and more.

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Speculation in the undeveloped land market can lead to housing booms

During the latest housing boom, many of the largest price increases occurred in cities that had at least some undeveloped land and were able to build new houses quickly. This fact is at odds with explanations in which constraints on housing supply is the driver of house prices. Charles Nathanson of Northwestern and Eric Zwick of the University of Chicago argue that, because speculation in land is easier than speculation in houses, cities with undeveloped land may experience larger house price cycles than other cities. Their analysis suggests that speculation in the land market was an important driver of the US house price boom between 2000 and 2006.

Insurance companies with larger market shares can negotiate lower prices with providers

Using 2014 claims data, Eric Roberts, Michael Chernew and J. Michael McWilliams of Harvard find that insurance companies with substantial bargaining power are able to negotiate lower prices for physician services than insurers with little bargaining power. In particular, insurers with market shares of 15 percent or more pay rates that are 21 percent lower, on average, than the rates paid to the same providers by insurers with shares of less than 5 percent.

Domestic inflation is more sensitive to global factors in countries more integrated into global supply chains

With data on 18 advanced and emerging market economies during 1982-2006, Raphael Auer, Claudio Borio and Andrew Filardo of the Bank for International Settlements conclude that the growth in cross-border trade in intermediate goods and services explains the increasing sensitivity of domestic inflation to global factors both across countries and over time. This may be because expansion of global value chains has increased international competitive pressures, weakening the importance of purely domestic resource constraints on the inflation process and making domestic inflation more sensitive to global demand.

Chart of the week: The numbers of quits and layoffs have reached their pre-recession levels

Chart shows the number of quits and fires in the U.S. non-farm economy since 2002.

Quote of the week: “If you were to ask me three years ago… when unemployment was still high and the economy was still digging out of a hole, I would have said, sure, fiscal policy would be great to help expedite getting back to full employment…” says San Francisco Fed president John Williams.

“But today I don’t think we need short-term fiscal stimulus. What we need is really better policies and investments in the long-term health of the economy… The stars are aligning in a way. Unemployment has come down. Job growth has been good. Other indicators like the Conference Board survey asking people how hard it is to find a job — that has gotten strong for the last year or so. It is really that all the things are moving together.”