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Expectations and the housing boom and bust. An open economy view

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  • Gete, Pedro

Abstract

I show that both before and after the Great Recession, housing dynamics strongly correlate with current account dynamics, both across and within countries. In a benchmark DSGE model of housing markets, housing price-to-rent ratios are counterfactual if the transmission channel from housing to the current account is only through the consumption effects from relaxed borrowing constraints. Utilizing a model with enough reallocation of labor between construction and tradable goods resolves the problem. In this model, using survey data on housing price expectations generates dynamics of housing variables and the current account consistent with the data. However, interest rate dynamics are counterfactual.

Suggested Citation

  • Gete, Pedro, 2020. "Expectations and the housing boom and bust. An open economy view," Journal of Housing Economics, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:jhouse:v:49:y:2020:i:c:s1051137720300279
    DOI: 10.1016/j.jhe.2020.101690
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    2. Luis Franjo & Luisa Lambertini & Serhiy Stepanchuk, 2024. "Growth, Housing, And Global Imbalances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 623-654, May.

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    More about this item

    Keywords

    Construction; Current account; Expectations; Global imbalances; Housing prices;
    All these keywords.

    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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