Current Account Patterns and National Real Estate Markets

Abstract

Keywords: Current account Real estate Appreciation Financial depth a b s t r a c t This paper studies the association between current account and real estate valuation across countries. We find a robust and strong positive association between current account deficits and the appreciation of the real estate prices/(GDP deflator). Controlling for lagged GDP/capita growth, inflation, financial depth, institution, urban population growth and the real interest rate; a one standard deviation increase of the lagged current account deficits is associated with an appreciation of the real estate prices by 10%. This real appreciation is magnified by financial depth, and mitigated by the quality of institutions. Intriguingly, the economic importance of current account variations in accounting for the real estate valuation exceeds that of the other variables, including the real interest rate and inflation. Among the OECD countries, we find evidence of a decline over time in the cross country variation of the real estate/(GDP deflator), consistent with the growing globalization of national real estate markets. Weaker patterns apply to the non-OECD countries in the aftermath of the East Asian crisis.

The global credit boom: Challenges for macroeconomics and policy

“…Other things being equal, the coexistence of strong demand, stable in ation and low unemployment is only possible if it is accompanied by a deterioration in the trade balance. 29 Taken together the two factors we have identiftied -the channelling of a large part of the credit growth into asset markets, notably housing, and demand spillovers driving external imbalances -are consistent with previous work by Aizenman and Jinjarak (2008) showing a link between current account balances and real estate markets.…”

Capital Flow Waves: Surges, Stops, Flight, and Retrenchment

“…See Milesi-Ferretti and Razin (2000), Chinn and Prasad (2003), Edwards (2005), Freund (2005), Adalet and Eichengreen (2007), and Freund and Warnock (2007). 3 Additional papers on bonanzas or surges include Aizenman and Jinjarak (2009), Cardarelli, Elekdag, and Kose (2009), and Caballero (2010. Related to the surge literature is a series of papers focusing on domestic credit booms and credit cycles, such as Gourinchas, Valdés, and Landerretche (2001) and Mendoza and Terrones (2008); these differ from the traditional stops literature by defining episodes as increases in credit relative to a stochastic trend.…”

A Forensic Analysis of Global Imbalances

“…12 Although this is a limitation, estimating the relationship with only this limited data set may still shed light on the link between the asset market behaviour and current account balances (like Aizenman and Jinjarak, 2009;Fratzscher and Straub, 2009), given that the housing boom prior to the global financial crisis concentrated on advanced economies. Regressions in which we include HH-Leverage 1 and HH-Leverage 2 use data for 1996 on, for instance, the last three five-year panels, 1996-2000, 2001-5, and 2006-8. Regressions with G-Leverage start with 1971, although the sample is limited in earlier years.…”