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Real Estate Valuation, Current Account and Credit Growth Patterns, Before and After the 2008-9 Crisis

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  • Joshua Aizenman
  • Yothin Jinjarak

Abstract

We explore the stability of the conditioning variables accounting for the real estate valuation before and after the crisis of 2008-9, in a panel of 36 countries, recognizing the crisis break. We validate the robustness of the association between the real estate valuation and lagged current account patterns, both before and after the crisis. The most economically significant variable in accounting for real estate valuation changes turned out to be the lagged real estate valuation appreciation (real estate inflation minus CPI inflation), followed by lagged declines of the current account/GDP, lagged domestic credit/GDP growth, and lagged equity market valuation appreciation (equity market appreciation minus CPI inflation). A one standard deviation increase in lagged real estate appreciation is associated with a 10 % increase in the present real estate appreciation, larger than the impact of a one standard deviation deterioration in the lagged current account/GDP (5%) and of the lagged domestic credit/GDP growth (3%). The results are supportive of both current account and credit growth channels, with the momentum channels playing the most important role. Smaller current account/GDP surpluses or larger deficits may serve as warning signals, especially when coinciding with credit expansion and real estate appreciation during the past several quarters.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19190.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19190

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  1. Kenneth N. Kuttner & Ilhyock Shim, 2013. "Can Non-Interest Rate Policies Stabilize Housing Markets? Evidence from a Panel of 57 Economies," NBER Working Papers 19723, National Bureau of Economic Research, Inc.
  2. Edward L. Glaeser & Todd Sinai, 2013. "Housing and the Financial Crisis," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number glae11-1.
  3. Klaus Adam & Pei Kuang & Albert Marcet, 2011. "House Price Booms and the Current Account," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2011, Volume 26, pages 77-122 National Bureau of Economic Research, Inc.
  4. Jack Favilukis & David Kohn & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2012. "International Capital Flows and House Prices: Theory and Evidence," NBER Working Papers 17751, National Bureau of Economic Research, Inc.
  5. Gete, Pedro, 2009. "Housing Markets and Current Account Dynamics," MPRA Paper 20957, University Library of Munich, Germany, revised 24 Feb 2010.
  6. Todd M. Sinai, 2012. "House Price Moments in Boom-Bust Cycles," NBER Working Papers 18059, National Bureau of Economic Research, Inc.
  7. Laibson, David I. & Mollerstrom, Johanna Britta, 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis," Scholarly Articles 4686766, Harvard University Department of Economics.
  8. Obstfeld, Maurice, 2012. "Does the Current Account Still Matter?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8888, C.E.P.R. Discussion Papers.
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