Current account dynamics and the housing cycle in Spain

Daniel Maas, Eric Mayer and Sebastian Rüth

Journal of International Money and Finance, 2018, vol. 87, issue C, 22-43

Abstract: We investigate the negative correlation between housing markets and the current account in a monetary union, using the Spanish economy as an illustrative example. By employing robust sign restrictions, which we derive from a DSGE model for a currency union, we analyze the effects of Spanish pull and Eurozone push factors in a mixed-frequency VAR framework. Savings glut, risk premium, and housing bubble shocks are capable of generating the negative co-movement of housing markets and the current account in the data. In contrast—and counterfactual to the housing boom—financial easing shocks in Spain predict a decline in both residential investment and house prices.

Keywords: Current account; Housing markets; Monetary union (search for similar items in EconPapers)
JEL-codes: E32 F32 F45 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:87:y:2018:i:c:p:22-43

DOI: 10.1016/j.jimonfin.2018.05.007

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