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House Price Booms, Current Account Deficits, and Low Interest Rates
Author(s) -
FERRERO ANDREA
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12202
Subject(s) - economics , interest rate , monetary economics , monetary policy , boom , current account , liberian dollar , exchange rate , real interest rate , macroeconomics , finance , environmental engineering , engineering
Domestic factors, such as credit and preference shocks, can explain the negative correlation between house prices and the current account in the U.S. and several other countries before the recent crisis. These shocks, however, cannot account for the fall of world real interest rates observed in the data. Expansionary monetary policy shocks in the U.S., coupled with exchange rate pegs to the dollar in emerging economies, are crucial to understanding the evolution of the real interest rate. Yet, monetary policy factors play virtually no role for house prices and the current account.