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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 ()

No 15/23, IMF Working Papers from International Monetary Fund

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. We also find that they correlate with capital flows more closely than in advanced economies. We then condition the analysis on an exogenous change to a particular component of capital flows. We find that a global liquidity shock, identified by aggregating bank-to-bank cross border flows and by using the external instrumental variable approach of Stock and Watson (2012) and Mertens and Ravn (2013), has a much stronger impact on house prices and consumption in emerging markets than in advanced economies. In our empirical model, holding house prices or the exchange rate constant in response to this shock tends to dampen its effects on consumption in emerging economies.

Keywords: Emerging markets; Developed countries; Capital flows; Business cycles; Global liquidity; Housing prices; International liquidity; C32, E44, F44, economies, liquidity, advanced economies, exchange rate, Time-Series Models, Financial Markets and the Macroeconomy, International Business Cycles, house prices, external instrumental variables, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-opm and nep-ure
Date: 2015-01-29
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Related works:
Journal Article: 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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