Recently portfolio choice has become an important element of many DSGE open economy models. Yet, a substantial body of evidence is inconsistent with standard frictionless portfolio choice models. In this paper we introduce a quadratic cost of changes in portfolio allocation into a two-country...

We estimate an open economy VAR model to quantify the effect of monetary policy and capital inflows shocks on the US housing market. The shocks are identified with sign restrictions derived from a standard DSGE model. We find that monetary policy shocks have a limited effect on house prices and...

A number of OECD countries experienced an environment of low interest rates and a rapid Increase in real house prices and residential investment during the past decade. Different explanations have been suggested for the housing boom: expansionary monetary policy, capital inflows due to a global...

The run-up to the recent global financial crisis was characterized by an environment of low interest rates and a rapid increase in housing market activity across OECD countries. Some scholars argue that expansionary monetary policy was responsible for the low level of interest rates and the...

A number of OECD countries experienced an environment of low interest rates and a rapid increase in housing market activity during the last decade. Previous work suggests three potential explanations for these events: expansionary monetary policy, capital inflows due to a global savings glut and...

A range of hypotheses have been put forward to explain the boom in house prices that occurred in the United States from the mid-1990s to 2007. This paper considers the relative importance of two of these hypotheses. First, global imbalances increased liquidity in the US financial system, driving...

This paper examines the relationship between financial regulation and the current account in an intertemporal model of the current account where financial regulation affects the current account through liquidity constraints. Greater liquidity constraints decrease the size and persistence of the...

How long shall a country take to learn the world technological frontier? What would happen if that country found the same difficulties in learning the true model of its economy? After all, countries catching up often experience life-changing transformations during the catch-up to a balanced...