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

By Ambrogio Cesa-Bianchi, Luis Felipe Céspedes, Alessandro Rebucci

January 29, 2015

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Ambrogio Cesa-Bianchi, Luis Felipe Céspedes, and Alessandro Rebucci. Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies, (USA: International Monetary Fund, 2015) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Asset and liability management, Consumption, Exchange rates, Foreign exchange, Housing prices, Inflation, International liquidity, National accounts, Prices

Keywords: Asset price behavior, BIS property price data set, C32, Consumption, E44, Economy, Emerging market, Equity price, Equity price increase, Exchange rate, Exchange rates, F44, Global, House price, House price channel, House price database, House price inflation cycle, House prices constant, Housing prices, Inflation, Inflation cycle, International liquidity, Nominal interest rate, Price, Price data set, Property price data set, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/023
Stock No:

WPIEA2015023
ISBN:

9781484346037
ISSN:

1018-5941

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