In the short run, a more widespread weakening of the housing market will have negative effects on aggregate consumption, but with important distributional consequences, though the effect partly depends on the nature of the shocks behind this weakening. The collateral effect on spending in the UK of housing wealth and the buffer stock role of home equity, given easy refinancing of mortgages, is substantial. However, high house prices, more restricted access to mortgages in recent years, high levels of student debt and lower real earnings for younger cohorts have restricted the proportion especially of younger households with a mortgage. Spending by most retired households is fairly insensitive to variations in owner-occupied housing wealth. Therefore the pool of households for whom the home-equity channel is likely to be important is smaller than it was, for example, in the early 2000s. I would expect this channel therefore to be weaker currently than it was then, particularly as access to mortgage credit is rather more cautiously regulated now than it was then and with larger spreads for high loan-to-value loans. For evidence on the time variation of the aggregate home-equity channel in the UK, see Aron et al (2012)https://ideas.repec.org/a/bla/revinw/v58y2012i3p397-423.html. The fact that currently higher proportions of mortgages are at fixed rates, albeit for relatively short durations, may also be a small impediment to refinancing and so tend to reduce the size of the home-equity channel. Offsetting the home equity channel is the 'saving for a down-payment' effect whereby high house prices to income, particularly when access to credit is more restricted, discourage spending, particularly by younger households. Moreover, to the extent that private sector tenants may link current house prices with expectations of future rents, there is another negative effect on spending for part of the population of households. In my work with economists at the Bundesbank and Banque de France, summarised in Hendry and Muellbauer (2017) https://ideas.repec.org/p/oxf/wpaper/832.html we find that in these economies such negative effects tend to dominate aggregate consumption, though undoubtedly with a great deal of heterogeneity across households. In the longer run, lower house prices could support more sustainable growth, particularly if partly caused by a large supply expansion and accompanied by a switch from taxation on transactions (Stamp Duty) to taxation of property values: the combination would greatly improve labour mobility and productivity, while residential investment could be a major contributor to economic growth. Reducing the despair of many younger people priced out of decent housing should increase rates of family formation and reduce the outmigration of talented Brits seeking a better life outside the UK. Aggregate GDP growth in the longer run would be supported by such policies.

I agree for reasons broadly on the grounds set out by Barro and Gordon. Given the deep problems of the Eurozone, with populist pressures for a break-up increasing, subjecting the ECB to even greater pressures from particular governments, is unlikely to lead to good outcomes. That said, better co-ordination between the most powerful government – Germany, the European Commission and the ECB to try to defuse these break-up pressures will be needed. A strong ECB voice that reflects the broader welfare of the countries in the monetary union need not detract from its independence.