Causality, real estate prices, and the current account |
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Authors: | Yothin Jinjarak Steven M. Sheffrin |
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Affiliation: | a Department of Financial and Management Studies, 534 College Buildings, SOAS, University of London, WC1H 0XG, United Kingdom;b Murphy Institute and Department of Economics, 108 Tilton Hall, Tulane University, New Orleans, LA 70115, United States |
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Abstract: | This paper explores the causal relations between real estate prices and the current account using recently developed econometric methods for recursive systems. Using a variety of high-quality real estate indices, we find little evidence that current account deficits (capital account surpluses) directly drove real estate prices in the United States, Spain, and Ireland. There is some evidence for this linkage in England; however it is transitory and not persistent. There is also strong evidence that current account surpluses have direct impacts on mortgage rates in the United States, providing an indirect channel for stimulating the real estate market mediated through the financial markets. |
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Keywords: | Causality Current account Graph-theoretic Real estate VAR |
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