importance of house price cycles compared with other asset price cycles the potential risks of asset price bubbles tend to vary across asset classes. research by the imf has shown that housing busts are, on average, twice as costly in terms of output losses as equity price busts. this reflects the higher exposure of banks to mortgages than shares. a bis central bankers ’ speeches key conclusion of literature on historical financial crises is that they tend to have worse outcomes when banks are distressed. for example, in october 1987 stock markets around the world fell sharply, but this did not represent a threat to the banking system and so, its impact was contained. in contrast, many researchers trace the origins of the current financial crisis back to the bursting of the us house price bubble. the link between house prices, banking crises and recessions is not unique to the current situation : a number of studies examining crises in both advanced and emerging economies over time and across countries have shown that they tend to coincide with the bursting of house price bubbles. the securitisation of mortgage loans has not only tended to weaken the origination process but has tended to expose countries ’ financial systems to real estate excesses in other countries. by transferring the credit risk the originator can exacerbate the boom without fear of the consequences of a collapse. identifying house price bubbles : problems and potential indicators so, how do policymakers identify these costly house price collapses? most house price busts are preceded by lengthy booms, so perhaps policymakers should try to identify potentially costly booms. but, even identifying a house price boom ( costly or not ) in real time can be challenging due to data issues regarding house price indices. the quality of these indices can be quite poor, one country can have a variety of indices from which to choose ( each providing a different measure of growth ), the publication lag can be quite significant in some countries and, within the euro area, there is a lack of harmonisation across countries. even if one identifies a boom, how do you know that it ’ s a costly one? not all house price booms end in bust and not all busts are very costly in terms of output nor have implications for financial stability. a 2003 imf study of real house price cycles for 14 countries over 30 years found that only 40 per cent of house price booms ended in bust. an examination by the oecd of 17 countries over a similar period showed that two - thirds of real house price boom

lael brainard : transitions in the outlook and monetary policy speech by ms lael brainard, member of the board of governors of the federal reserve system, at the john f kennedy school of government, harvard university, cambridge, massachusetts, 1 march 2017 * * * these remarks represent my own views, which do not necessarily represent those of the federal reserve board or the federal open market committee. the economy appears to be at a transition. we are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time. assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path. as normalization of the federal funds rate gets further under way, monetary policy too is approaching a transition, prompting increased focus on the balance sheet. how the federal funds rate and the balance sheet should be adjusted individually and in combination depends on the degree to which they are substitutes, their relative precision, and the degree to which their effects on the economy are well understood. let me start with the outlook and then turn to policy. progress at home and abroad over the past several quarters, we have seen improvement in inflation and activity both at home and abroad following a period when the drag on domestic activity from abroad was considerable. between the middle of 2014 and 2016, a combination of notable fragilities and risks in large foreign economies, elevated sensitivity of the dollar to policy divergence, a sharp decline in oil prices, and financial markets ’ heightened sensitivity to these downside risks slowed progress in the u. s. economy and the adjustment of monetary policy to an extent few had anticipated. after being an important constraint in the past few years, the external environment currently appears more benign than it has been for some time, even though risks remain. near - term risks to the united states from abroad appear to have diminished. recoveries are gaining traction in china, europe, and japan in part reflecting greater confidence in their respective policy environments. the improvement in the global risk outlook was also helped by the continued economic progress and the gradual pace of monetary policy adjustment in the united states last year. in recent quarters, market participants appear more confident that china has the will and capacity to maintain its exchange rate regime, while achieving its growth targets, although there is a tension with high credit growth that will eventually need to be addressed. early last year, china ’ s gross domestic