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Housing demands, savings gluts and current account dynamics

Listed author(s):
  • Gete, Pedro

    ()

    (Georgetown University)

This paper studies the role of housing markets in explaining recent current account dynamics. I document a strong negative correlation, both across and within countries, between housing and current account dynamics. Then, in a quantitative two-country model without exchange rate driven expenditure switching, I analyze savings glut shocks and three drivers of housing demand (population, loan-to-value and housing price expectations) for which I input their dynamics observed in the OECD economies since the mid 1990s. Housing drivers alone imply counterfactual interest rate dynamics. Savings glut shocks alone cannot account for the housing dynamics. The combination of both types of shocks allows to match the emergence and narrowing of the Global Imbalances and the housing booms and busts. Counterfactuals using the model suggest that, as long as loan-to-values are regulated and housing expectations are not very optimistic, the large global imbalances of the mid-2000s are unlikely to return.

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File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2015/0221.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 221.

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Length: 32 pages
Date of creation: 01 Jan 2015
Date of revision: 01 Aug 2015
Handle: RePEc:fip:feddgw:221
DOI: 10.24149/gwp221
Contact details of provider: Web page: http://www.dallasfed.org/
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