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Housing demands, savings gluts and current account dynamics

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  • Gete, Pedro

    () (Georgetown University)

Abstract

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.

Suggested Citation

  • Gete, Pedro, 2015. "Housing demands, savings gluts and current account dynamics," Globalization and Monetary Policy Institute Working Paper 221, Federal Reserve Bank of Dallas, revised 01 Aug 2015.
  • Handle: RePEc:fip:feddgw:221
    DOI: 10.24149/gwp221
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    Cited by:

    1. 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

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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