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Housing Market and Current Account Imbalances in the International Economy

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  • Maria Teresa Punzi

Abstract

This paper presents a two-sector, two-country model showing that in ation in the housing market, a low personal savings rate, and a construction investment boom can contribute to a large current account de cit. In the model, demand by a group of households in the domestic country is constrained by the availability of collateral. This implies more procyclical debt capacity because constrained households can borrow against the increase in the value of their houses during an expansion. A higher degree of nancial liberalization and development helps constrained households reach higher loan-to-value ratios, thus relaxing their borrowing constraints. The resulting higher net worth and lower need for savings imply a worsening current account.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 12/09.

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Handle: RePEc:not:notcfc:12/09

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Cited by:
  1. Tillmann, Peter, 2012. "Capital inflows and asset prices: Evidence from emerging Asia," IMFS Working Paper Series 58, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  2. Maria Teresa Punzi & Caterina Mendicino, 2014. "House Prices, Capital Inflows and Macroprudential Policy," Department of Economics Working Papers wuwp180, Vienna University of Economics, Department of Economics.
  3. Eleni Iliopulos, 2008. "Collateral constraints, external imbalances and heterogeneous agents in a two-country world," Documents de recherche, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne 08-12, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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