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A Model of Housing Boom and Bust in a Small Open Economy

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  • Hajime Tomura

Abstract

This paper considers a dynamic stochastic general equilibrium model for a small open economy and finds that an improvement in the terms of trade causes a housing boom-bust cycle if the duration of the improvement is uncertain. It is shown that as the economy has better access to the international financial market, the extent of the housing boom and bust gets larger. Also, an increase in the loan-to-value ratio in the domestic mortgage market tends to enhance the extent of the housing boom and bust when the economy has good access to the international financial market.

Suggested Citation

  • Hajime Tomura, 2008. "A Model of Housing Boom and Bust in a Small Open Economy," Staff Working Papers 08-9, Bank of Canada.
  • Handle: RePEc:bca:bocawp:08-9
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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp08-9.pdf
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    References listed on IDEAS

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    1. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-137, February.
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    7. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    8. Andrew Benito & Haroon Mumtaz, 2006. "Consumption excess sensitivity, liquidity constraints and the collateral role of housing," Bank of England working papers 306, Bank of England.
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    Citations

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    Cited by:

    1. Julien Reynaud, 2015. "Gauging Housing Supply in Canada; A Stock Approach," IMF Working Papers 15/128, International Monetary Fund.
    2. Evridiki Tsounta, 2009. "Is the Canadian Housing Market Overvalued? A Post-crisis Assessment," IMF Working Papers 09/235, International Monetary Fund.
    3. Paul Corrigan, 2017. "Terms-of-Trade and House Price Fluctuations: A Cross-Country Study," Staff Working Papers 17-1, Bank of Canada.

    More about this item

    Keywords

    Business fluctuations and cycles; Credit and credit aggregates;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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