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Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies

Ambrogio Cesa‐bianchi, Luis Cespedes () and Alessandro Rebucci ()
Authors registered in the RePEc Author Service: Ambrogio Cesa-Bianchi ()

Journal of Money, Credit and Banking, 2015, vol. 47, issue S1, 301-335

Abstract: In this paper, we first compare house price cycles in advanced and emerging economies using a new quarterly house price data set covering the period 1990–2012. We find that house prices in emerging economies grow faster, are more volatile, less persistent, and less synchronized across countries than in advanced economies (AEs). We also find that they correlate with capital flows more closely than in AEs. We then condition the analysis on an exogenous change to a particular component of capital flows: global liquidity, broadly understood as a proxy for the international supply of credit. We identify this shock by aggregating bank‐to‐bank cross‐border credit and by using the external instrumental variable approach introduced by Stock and Watson (2012) and Mertens and Ravn (2013). We find that in emerging markets (EMs) a global liquidity shock has a much stronger impact on house prices and consumption than in AEs. We finally show that holding house prices constant in response to this shock tends to dampen its effects on consumption in both AEs and EMs, but possibly through different channels: in AEs by boosting the value of housing collateral and hence supporting domestic borrowing; in EMs, by appreciating the exchange rate and hence supporting the international borrowing capacity of the economy.

Date: 2015
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http://hdl.handle.net/10.1111/jmcb.12204

Related works:
Working Paper: Global liquidity, house prices and the macroeconomy: evidence from advanced and emerging economies (2015) Downloads
Working Paper: Global Liquidity, House Prices and the Macroeconomy: Evidence from Advanced and Emerging Economies (2015) Downloads
Working Paper: Global Liquidity, House Prices, and the Macroeconomy; Evidence from Advanced and Emerging Economies (2015) Downloads
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