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Current Account Dynamics and the Housing Cycle in Spain

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  • Mayer, Eric
  • Maas, Daniel
  • Rüth, Sebastian

Abstract

We investigate the negative correlation between housing markets and the current account in Spain. By employing robust sign restrictions, which we derive from a DSGE model for a currency union, we analyze the effects of Spanish pull and Eurozone push factors in a mixed frequency VAR framework. Savings glut, risk premium, and housing bubble shocks are capable of generating the negative co-movement of housing markets and the current account in the data. In contrast, and counterfactual to the housing boom, financial easing shocks in Spain predict a decline in, both, residential investment and house prices. Among the four identifed shocks, savings glut shocks have most explanatory power for real house prices, whereas risk premium shocks account for most of the variation in residential investment. Financial easing shocks explain fluctuations to a similar extend as savings glut and risk premium shocks, while housing bubble shocks explain slightly less variance in the data.

Suggested Citation

  • Mayer, Eric & Maas, Daniel & Rüth, Sebastian, 2016. "Current Account Dynamics and the Housing Cycle in Spain," VfS Annual Conference 2016 (Augsburg): Demographic Change 145824, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145824
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    3. Sariye Belgin Akcay, 2023. "Current Account Imbalances, House Prices, and Institutions," International Real Estate Review, Global Social Science Institute, vol. 26(3), pages 342-391.
    4. Simeon Coleman & Juan Carlos Cuestas, 2023. "Has the current account broken up with its fundamentals in Central and Eastern Europe?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 962-980, January.
    5. Simeon Coleman & Juan Carlos Cuestas, 2019. "Current account and structural change in European transition economies," Working Papers 2019/08, Economics Department, Universitat Jaume I, Castellón (Spain).
    6. Tsai, I-Chun & Lin, Che-Chun, 2022. "A re-examination of housing bubbles: Evidence from European countries," Economic Systems, Elsevier, vol. 46(2).
    7. Czerniak, Adam & Borowski, Jakub & Boratyński, Jakub & Rosati, Dariusz, 2020. "Asset price bubbles in a monetary union: Mind the convergence gap," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 288-302.
    8. Irina-Marilena, Ban, 2022. "Introducing house prices to the intertemporal current account model: An application to the European Union," Economic Modelling, Elsevier, vol. 117(C).

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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