House Price Booms, Current Account Deficits, and Low Interest Rates

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractOne of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account defi cits, not only in the United States but also in other countries that have subsequently experienced the highest degree of fi nancial turmoil. A progressive relaxation of credit standards can rationalize this empirical observation. Lower collateral requirements facilitate access to external funding and drive up house prices. The current account turns negative because households borrow from the rest of the world. At the same time, however, the world real interest rate counterfactually increases. The two key ingredients that reconcile a demand-based explanation of house price booms and current account defi cits with the evidence on real interest rates are nominal interest rates lower than the predictions of a standard monetary policy rule in leveraged economies and foreign exchange rate pegs in saving countries.

Testing the global banking glut hypothesis

“…They derive the sign restrictions from a two-country dynamic stochastic general equilibrium (DSGE) model, similar to the one in Ferrero (2012). 22 Sá and Wieladek (2014) identify savings glut shocks as risk premium shocks.…”

Comovement in Euro area housing prices: A fractional cointegration approach

“…The role of global imbalances and foreign capital inflows in fuelling the US housing boom in the 2000s has been extensively discussed, but the correlation between housing prices and current account deficits also appears in different samples of developed and emerging economies (Obstfeld and Rogoff, 2009;Gete, 2009;André, 2010;Ferrero, 2012). Within the euro area, housing booms in Greece, Spain and Ireland were associated with a sharp deterioration in current account balances.…”

Six Years (1999-2015) of Escalating House Price: Can Fdi Be Blamed?

“…The house price studies can be divided into several clusters -dynamics study (Bork & Møller, 2015;Bajari et al 2013), cycle study (Huang & Tang, 2012;Ferrero, 2015). While there is a substantive body of literature studies on house prices, in particular in the current decade, no fixed set of price determinants has been identified.…”