Current account patterns and national real estate markets

Joshua Aizenman, Yothin Jinjarak

Research output: Contribution to journalArticlepeer-review

81 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)75-89
Number of pages15
JournalJournal of Urban Economics
Volume66
Issue number2
DOIs
StatePublished - 1 Sep 2009
Externally publishedYes

Keywords

  • Appreciation
  • Current account
  • Financial depth
  • Real estate

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