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

40 Pages Posted: 6 May 2015  

Ambrogio Cesa-Bianchi

Bank of England

Luis Céspedes

Adolfo Ibanez University

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2015

Abstract

This paper first compares house price cycles in advanced and emerging economies using a new quarterly house price dataset covering the period 1990-2012. It is found that that house prices in emerging economies grow faster, are more volatile, less persistent and less synchronized across countries than in advanced economies. They also correlate more closely with capital flows than in advanced economies. The analysis is then conditioned on an exogenous change to global liquidity, broadly understood as a proxy for the international supply of credit. It is found that in emerging markets a global liquidity shock has a much stronger impact on house prices and consumption than in advanced economies. Finally, holding house prices constant in response to this shock tends to dampen its effects on consumption in both advanced and emerging economies, but possibly through different channels: in advanced economies by boosting the value of housing collateral and hence supporting domestic borrowing, and in emerging markets by appreciating the exchange rate and hence supporting the international borrowing capacity of the economy.

Keywords: Capital flows, Emerging markets, Global liquidity, House prices, External instrumental variables

JEL Classification: C32, E44, F44

Suggested Citation

Cesa-Bianchi, Ambrogio and Céspedes, Luis and Rebucci, Alessandro, Global Liquidity, House Prices and the Macroeconomy: Evidence from Advanced and Emerging Economies (March 2015). IDB Working Paper No. IDB-WP-576. Available at SSRN: https://ssrn.com/abstract=2603125 or http://dx.doi.org/10.2139/ssrn.2603125

Ambrogio Cesa-Bianchi (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://sites.google.com/site/ambropo/

Luis Cespedes

Adolfo Ibanez University ( email )

Diagonal Las Torres 2640 Peñaleón
Presidente Errázuriz 3485 Las Condes
Santiago, 794-1169
Chile

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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