Capital Inflows and Asset Prices: Evidence from Emerging Asia

Peter Tillmann

No 201215, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: The withdrawal of foreign capital from emerging countries at the height of the recent financial crisis and its quick return sparked a debate about the impact of capital flow surges on asset markets. This paper addresses the response of property prices to an inflow of foreign capital. For that purpose we estimate a panel VAR on a set of Asian emerging market economies, for which the waves of inflows were particularly pronounced, and identify capital inflow shocks based on sign restrictions. Our results suggest that capital inflow shocks have a significant effect on the appreciation of house prices and equity prices. Capital inflow shocks account for - roughly - twice the portion of overall house price changes they explain in OECD countries. We also address crosscountry differences in the house price responses to shocks, which are most likely due to differences in the monetary policy response to capital inflows.

Keywords: Capital Inflows; House Prices; Monetary Policy; Sign Restrictions; Panel VAR (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012
New Economics Papers: this item is included in nep-ifn and nep-mon
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Capital inflows and asset prices: Evidence from emerging Asia (2013)
Working Paper: Capital Inflows and Asset Prices: Evidence from Emerging Asia (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201215

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