Terms-of-trade and house price fluctuations: A cross-country study

Arbeitspapier

Terms-of-trade shocks are known to be key drivers of business cycles in open economies. This paper argues that terms-of-trade shocks were also important for house price fluctuations in a panel of developed countries over the 1994-2015 period. In a panel vector error-correction model of house prices, household debt and real tradable prices, terms-of-trade shocks explain between 16 and 41 per cent of the long-run variance in house price growth in a typical country, and from 45 to 85 per cent of the long-run variance of the ratio of house prices to non-housing consumption. Most of the variation in the house price/consumption ratio is associated with changes in real import prices, with idiosyncratic shocks to real export prices playing a minor role. On average, a permanent 1 per cent decline in real import prices raises the ratio of real house prices to non-housing consumption by about 0.9 per cent.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2017-1

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Business Fluctuations; Cycles ; Money Supply; Credit; Money Multipliers ; Financial Aspects of Economic Integration ; Open Economy Macroeconomics
• Subject: Housing ; Financial stability ; International topics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Corrigan, Paul
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2017

Further information

• DOI: doi:10.34989/swp-2017-1
• Handle: http://hdl.handle.net/10419/171955