 Introducing house prices to the intertemporal current account model: An application to the European UnionBan Irina-Marilena Economic Modelling, 2022, vol. 117, issue C Abstract: The last 30 years have been marked by significant and persistent external imbalances. To examine the relationship between the current account balance and its determinants, particularly house prices, we extend the intertemporal model of the current account. We introduce the prices of durables to the theoretical model to account for house prices. In addition to house prices, the theoretical model also incorporates fiscal balance, income, investment, and government spending to explain external imbalances. We test the model for the European Union's member states between 2000 and 2019 using a system generalized method of moments model, which performs well empirically as the coefficients are significant and have the predicted sign. Our findings indicate that rising house prices exacerbate the current account balance due to the wealth effect on consumption. Within the European Union, house prices have the most negative impact on the current account balance in Central and Eastern European countries. Keywords: Intertemporal model of the current account; House prices; Wealth effect; Twin-deficit hypothesis; System generalized method of moments (GMM) model; Economic crisis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:117:y:2022:i:c:s026499932200298x DOI: 10.1016/j.econmod.2022.106061 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.