Expectations and the housing boom and bust. An open economy view

Pedro Gete

Journal of Housing Economics, 2020, vol. 49, issue C

Abstract: I show that both before and after the Great Recession, housing dynamics strongly correlate with current account dynamics, both across and within countries. In a benchmark DSGE model of housing markets, housing price-to-rent ratios are counterfactual if the transmission channel from housing to the current account is only through the consumption effects from relaxed borrowing constraints. Utilizing a model with enough reallocation of labor between construction and tradable goods resolves the problem. In this model, using survey data on housing price expectations generates dynamics of housing variables and the current account consistent with the data. However, interest rate dynamics are counterfactual.

Keywords: Construction; Current account; Expectations; Global imbalances; Housing prices (search for similar items in EconPapers)
JEL-codes: F32 G28 R21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:49:y:2020:i:c:s1051137720300279

DOI: 10.1016/j.jhe.2020.101690

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