Housing Markets and Current Account Dynamics

Abstract

I model global imbalances as arising from changes in preferences for housing relative to tradable goods. The key ingredients in the model are labor reallocation across sectors and consumption smoothing between housing and tradable goods. Countries import goods during periods when more domestic labor is devoted to housing construction. Housing booms are larger in countries that can run trade de…cits. This occurs despite the absence of wealth e¤ects, and even if trade is not primarily concentrated in capital goods. I provide several types of evidence to support the theory. First, over the last decade housing variables have decoupled from the business cycle while durable and total consumption expenditures have not. Second, for the same period there has been a strong cross-country correlation between housing variables and current account dynamics. Third, in a parameterized version of the model, housing demand shocks that match the cross-country dynamics of housing quantities generate current account dynamics matching recent global imbalances. Fourth, I use sign restrictions implied by the model to estimate a vector autoregression and identify the e¤ects of housing shocks on the U.S. trade de…cit. The results suggest that housing shocks are an important driving force of current account dynamics.

The Size of the Rental Market and Housing Market Fluctuations

“…Among demo variables the best fit was found for variable urban, describing the share of population living in urban areas. However, given that the sign of estimated parameter turned out to be negative, which is at odds with the literature (Glaeser et al 2008), we have decided to use the specification with immigration variable.…”

“…The estimates of parameters γ and δ are the main focus of our analysis, as they measure whether the size of the rental sector amplifies or mitigates the impact of a given explanatory variable on the housing sector dynamics. It is worth noting that output gap takes into account many factors, including global determinants of the housing market, the role of which is emphasized indicated in other studies (Gete 2010;Agnello and Schuknecht 2011). For example, an inflow of foreign investment to the housing sector, which is reflected in current account deterioration, leads to both higher output gap and house prices increase.…”

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

“…The consensus before the recent financial crisis, both among academics and policymakers, had been that monetary policy acts more effectively by "mopping after the fact" (Bernanke and Gertler, 2001;Greenspan, 2002). 29 The crisis has led several observers to reconsider the consensus (see, for example, Rudebusch (2005) for an early dissenting argument). Perhaps, the Federal Reserve could have prevented the excessive house price appreciation of the first half of the 2000s by increasing the FFR early on.…”

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.…”