Housing Cycles and Exchange Rates

Sai Ma () and Shaojun Zhang
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Sai Ma: Division of International Finance, Federal Reserve Board of Governors, Washington, District of Columbia 20551

Management Science, 2024, vol. 70, issue 9, 5646-5666

Abstract: This paper documents that the ratio of residential-to-nonresidential investment is a strong in-sample and out-of-sample predictor for the dollar up to 12 quarters. The predictability is robust to a battery of additional checks and holds for other G10 currencies. We explain the predictability in an analytical model with time-varying housing preference, productivity, and volatility. In the model, the U.S. housing investment share is higher during periods with higher growth and lower uncertainty, corresponding to lower future nontradable prices, dollar index, and excess returns. We find strong empirical support for the channel. Alternative explanations, including the business and financial cycle, find less empirical support.

Keywords: housing; exchange rate; predictability; risk premium (search for similar items in EconPapers)
Date: 2024
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http://dx.doi.org/10.1287/mnsc.2023.4932 (application/pdf)

Related works:
Working Paper: Housing Cycle and Exchange Rates (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:9:p:5646-5666

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