Housing demands, savings gluts and current account dynamics

Pedro Gete

No 221, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper studies the role of housing markets in explaining recent current account dynamics. I document a strong negative correlation, both across and within countries, between housing and current account dynamics. Then, in a quantitative two-country model without exchange rate driven expenditure switching, I analyze savings glut shocks and three drivers of housing demand (population, loan-to-value and housing price expectations) for which I input their dynamics observed in the OECD economies since the mid 1990s. Housing drivers alone imply counterfactual interest rate dynamics. Savings glut shocks alone cannot account for the housing dynamics. The combination of both types of shocks allows to match the emergence and narrowing of the Global Imbalances and the housing booms and busts. Counterfactuals using the model suggest that, as long as loan-to-values are regulated and housing expectations are not very optimistic, the large global imbalances of the mid-2000s are unlikely to return.

JEL-codes: F32 G28 R21 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-01-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-ure
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:221

DOI: 10.24149/gwp221

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