We looked yesterday at the impact of fiscal policy on current account deficits and found a small but modest relationship. Last week Kash Mansouri took a look at the relationship between housing prices and the current account deficit, finding the above for the United States. Again, a relationship. And from the vantage point of 2005 you might have thought it was an extremely strong relationship but more recently it looks hazy. In an international context you can find a strong correlation, but you need to ignore China to make it show up.
A return to old-school curbs on capital inflows keeps being the dog that doesn’t park in the developed world policy debate.