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House prices, collateral effects and sectoral output dynamics in emerging market economies

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  • Bahadir, Berrak
  • Gumus, Inci

Abstract

This paper studies the effect of house prices on sectoral output in emerging market economies, focusing on the role of collateral and borrowing dynamics. Using data from Brazil, we first show that an increase in house prices contributes to higher growth in nontradable sector output, whereas it has no effect on tradable sector output. Then, we study the model dynamics generated by shocks to housing demand in a two-sector small open economy real business cycle model. The results show that housing demand shocks lead to a sectoral reallocation by inducing an expansion in the nontradable sector and a contraction in the tradable sector. The model successfully generates the comovement we observe in the data, matching the strong positive correlation of house prices and nontradable output. We also study the importance of collateral effects for the model dynamics and show that the collateral channel is key to generating the relationship between house prices and sectoral output observed in the data.

Suggested Citation

  • Bahadir, Berrak & Gumus, Inci, 2022. "House prices, collateral effects and sectoral output dynamics in emerging market economies," Journal of International Money and Finance, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:jimfin:v:129:y:2022:i:c:s0261560622001279
    DOI: 10.1016/j.jimonfin.2022.102724
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    More about this item

    Keywords

    House Prices; Collateral Effects; Housing Demand Shocks; Sectoral Output;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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