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This paper analyses the factors influencing the level and volatility of real house prices in a panel of OECD countries over the period 1980-2005. Results suggest that real house prices tend to rise proportionally with real household incomes, while declines in structural unemployment and real interest rates are associated with higher real house prices. The process of mortgage market deregulation has coincided with a noticeable increase in real house prices in OECD countries, while high rates of leverage are found to amplify house price volatility. Estimates suggest that tax reliefs on mortgage debt financing costs tend to be capitalised into real house prices and may also amplify price volatility, reflecting the tendency for such policies to encourage leverage. While higher transaction costs are associated with lower house price volatility, this effect is modest compared to the impact of banking supervision. Indeed, prudential banking supervision and policies designed to contain the excessive build-up of leverage are shown to significantly reduce the extent of house price volatility, underscoring the importance of ongoing efforts to reform prudential frameworks in OECD countries.

Economics

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Investment in knowledge-based capital (KBC) – assets that lack physical embodiment, such as computerised information, innovative property and economic competencies – has been rising significantly. This has implications for innovation and productivity growth and requires new thinking on policy. The returns to investing in KBC differ significantly across countries and are partly shaped by structural policies, which influence the ability of economies to reallocate scarce resources to firms that invest in KBC. Well-functioning product, labour and venture capital markets and bankruptcy laws that do not overly penalise failure can raise the expected returns to investing in KBC by improving the efficiency of resource allocation. While structural reforms offer the most cost-effective approach to raising investment in KBC, there is a role for innovation policies to raise private investment in KBC towards the socially optimal level(s). Indeed, R&D tax incentives and, as a finding that contrasts with previous research, direct support measures can be effective, but design features are crucial in order to minimise the fiscal cost and unintended consequences of such policies. Welldefined intellectual property rights (IPR) are also important to provide firms with the incentive to innovate and to promote knowledge diffusion via the public disclosure of ideas. However, such IPR regimes need to be coupled with pro-competition policies to ensure maximum effect while the rising costs of the patent system in emerging KBC sectors may have altered the trade-off inherent to IPR between the incentives to innovate and the broad diffusion of knowledge.

Science and Technology --- Economics

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This paper explores the role of managerial capital and business research and development (R&D) in fostering multifactor productivity (MFP) convergence in a panel of 42 countries. The OECD long-term growth model is augmented to show that, in addition to trade openness, an economy’s speed of convergence to its long-run steady state level of MFP is an increasing function of the quality of its managerial capital and the size of its domestic R&D sector. The economic importance of these two enabling factors are examined in the context of a scenario, whereby MFP growth at the technological frontier is ½ percentage point higher (than in the baseline projection) per annum until 2060. This exercise shows that some countries benefit significantly more from higher frontier growth than could be expected based on their trade openness alone. In turn, evidence on the policy determinants of managerial capital and business R&D is reviewed, which highlights the importance of structural reforms and carefully-designed innovation policies.

Economics --- Industry and Services

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Investment in knowledge-based capital (KBC) – assets that lack physical embodiment, such as computerised information, innovative property and economic competencies – has been rising significantly. This has implications for innovation and productivity growth and requires new thinking on policy. The returns to investing in KBC differ significantly across countries and are partly shaped by structural policies, which influence the ability of economies to reallocate scarce resources to firms that invest in KBC. Well-functioning product, labour and venture capital markets and bankruptcy laws that do not overly penalise failure can raise the expected returns to investing in KBC by improving the efficiency of resource allocation. While structural reforms offer the most cost-effective approach to raising investment in KBC, there is a role for innovation policies to raise private investment in KBC towards the socially optimal level(s). Indeed, R&D tax incentives and, as a finding that contrasts with previous research, direct support measures can be effective, but design features are crucial in order to minimise the fiscal cost and unintended consequences of such policies. Welldefined intellectual property rights (IPR) are also important to provide firms with the incentive to innovate and to promote knowledge diffusion via the public disclosure of ideas. However, such IPR regimes need to be coupled with pro-competition policies to ensure maximum effect while the rising costs of the patent system in emerging KBC sectors may have altered the trade-off inherent to IPR between the incentives to innovate and the broad diffusion of knowledge.

Science and Technology --- Economics

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Investment in knowledge-based capital (KBC) – assets that have no physical embodiment, such as computerised information, innovative property and economic competencies – has been rising significantly. This has implications for innovation and productivity growth and requires new thinking on policy. The returns to investing in KBC differ significantly across countries and are partly shaped by structural policies, which influence the ability of national economies to reallocate scarce resources to firms that invest in KBC. In this regard, well-functioning product, labour and venture capital markets and bankruptcy laws that do not overly penalise failure can raise the expected returns to investing in KBC by improving the efficiency of resource allocation. While structural reforms offer the most cost-effective approach to raising investment in KBC, there is a role for innovation policies to raise private investment in KBC towards socially optimal levels. Indeed, R&D tax incentives and, as a finding that contrasts with previous research, direct support measures can be effective, but design features are crucial in order to minimise the fiscal cost and unintended consequences of such policies. Well-defined intellectual property rights (IPR) are also important to provide firms with the incentive to innovate and to promote knowledge diffusion via the public disclosure of ideas. However, such IPR regimes need to be coupled with pro-competition policies to ensure maximum effect while the rising costs of the patent system in emerging KBC sectors may have altered the trade-off inherent to IPR between the incentives to innovate and the broad diffusion of knowledge.

Science and Technology --- Economics