Good Inflation, Bad Inflation : The Housing Boom, Economic Crisis and the Rise of Public-Private Keynesianism

This paper presents a comparative analysis of the determinants, sustenance and broader macroeconomic consequences of the ultimately unsustainable housing boom in Ireland and the UK in recent years. It examines, in particular, the role played by ostensibly depoliticised monetary policy in both contexts in the development of a house price bubble which served to fuel consumer-led growth. It assesses the viability, sustainability and reproducibility of the private debt-financed consumer boom that house price inflation has generated. In the process it draws attention to the increasingly differentiated character of both government inflationary preferences and counter-inflationary performance with the shift to official measures of inflation that exclude mortgage interest repayments and, in the UK at least, to the covert repoliticisation of monetary policy. It concludes by suggesting that governments may well not have time-inconsistent inflationary preferences, so much as sectorally specific inflationary preferences. This might be summarised in terms of the aphorism - ‘retail price inflation poor, house price inflation good’