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Real estate valuation, current account and credit growth patterns, before and after the 2008–9 crisis

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  • Aizenman, Joshua
  • Jinjarak, Yothin

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.

Suggested Citation

  • Aizenman, Joshua & Jinjarak, Yothin, 2014. "Real estate valuation, current account and credit growth patterns, before and after the 2008–9 crisis," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 249-270.
  • Handle: RePEc:eee:jimfin:v:48:y:2014:i:pb:p:249-270
    DOI: 10.1016/j.jimonfin.2014.05.016
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    References listed on IDEAS

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    Cited by:

    1. Davis, J. Scott, 2015. "The macroeconomic effects of debt- and equity-based capital inflows," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 81-95.
    2. Gete, Pedro, 2015. "Housing demands, savings gluts and current account dynamics," Globalization Institute Working Papers 221, Federal Reserve Bank of Dallas, revised 01 Aug 2015.
    3. Mikkel Hermansen & Oliver Röhn, 2017. "Economic resilience: The usefulness of early warning indicators in OECD countries," OECD Journal: Economic Studies, OECD Publishing, vol. 2016(1), pages 9-35.
    4. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
    5. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    6. in 't Veld, Jan & Kollmann, Robert & Pataracchia, Beatrice & Ratto, Marco & Roeger, Werner, 2014. "International capital flows and the boom-bust cycle in Spain," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 314-335.
    7. repec:eee:ecmode:v:67:y:2017:i:c:p:248-260 is not listed on IDEAS
    8. Oliver Röhn & Aida Caldera Sánchez & Mikkel Hermansen & Morten Rasmussen, 2015. "Economic resilience: A new set of vulnerability indicators for OECD countries," OECD Economics Department Working Papers 1249, OECD Publishing.
    9. Engelbert Stockhammer & Christina Wolf, 2019. "Building blocks for the macroeconomics and political economy of housing," Working Papers PKWP1908, Post Keynesian Economics Society (PKES).
    10. Pinar Karahan & Nilgun Caglairmak Uslu, 2016. "Kredi Hacmi Ile Cari Acik Arasindaki Iliski: Turkiye Icin Dinamik Bir Analiz," EconWorld Working Papers 16007, WERI-World Economic Research Institute, revised Oct 2016.
    11. Leonor Coutinho & Alessandro Turrini & Stefan Zeugner, 2018. "Methodologies for the Assessment of Current Account Benchmarks," European Economy - Discussion Papers 2015 - 086, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    12. Pinar Karahan & Nilgun Caglairmak Uslu, 2016. "The Relationship between Credit Volume and Current Account Deficit: A Dynamic Analysis for Turkey," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 2(1), pages 31-40, June.
    13. Matthew S. Yiu & Sahminan Sahminan, 2017. "Global Liquidity, Capital Inflows and House Prices in ASEAN Economies," International Real Estate Review, Asian Real Estate Society, vol. 20(1), pages 105-126.
    14. Hwee Kwan Chow & Taojun Xie, 2016. "Are House Prices Driven by Capital Flows? Evidence from Singapore," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-21, February.

    More about this item

    Keywords

    Current account; Real estate; Credit supply; Global crisis; Housing boom;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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