Housing Cycle and Exchange Rates

Sai Ma and Shaojun Zhang

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: This paper documents that U.S. housing capital investment is a strong negative predictor of U.S. dollar changes and excess returns over the next six months to five years. Other advanced economies exhibit similar patterns. Moreover, positive housing supply shocks predict lower prices of housing services and nontradables relative to that of tradables, as well as higher output growth and macroeconomic volatility. An analytical model shows that these channels generate the exchange rate predictability under incomplete and complete markets, respectively. Cross-sectionally, currencies with higher loadings on the U.S. housing cycle carry higher average currency premia, compensating the U.S. investor for bearing the U.S. long-run consumption risk.

JEL-codes: F31 F37 G15 G17 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (3)

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http://ssrn.com/abstract=3384816

Related works:
Journal Article: Housing Cycles and Exchange Rates (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2019-14

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