Housing Cycle and Exchange Rates

Fisher College of Business Working Paper No. 2019-03-014

Charles A. Dice Center Working Paper No. 2019-14

81 Pages Posted: 9 May 2019

See all articles by Sai Ma

Sai Ma

Board of Governors of the Federal Reserve

Shaojun Zhang

The Ohio State University

Date Written: May 6, 2019


This paper documents that U.S. housing capital investment is a strong negative predictor of U.S. dollar changes and excess returns over the next six months to five years. Other advanced economies exhibit similar patterns. Moreover, positive housing supply shocks predict lower prices of housing services and nontradables relative to that of tradables, as well as higher output growth and macroeconomic volatility. An analytical model shows that these channels generate the exchange rate predictability under incomplete and complete markets, respectively. Cross-sectionally, currencies with higher loadings on the U.S. housing cycle carry higher average currency premia, compensating the U.S. investor for bearing the U.S. long-run consumption risk.

Keywords: housing, exchange rate, predictability

JEL Classification: F31, F37, G150, G17

Suggested Citation

Ma, Sai and Zhang, Shaojun, Housing Cycle and Exchange Rates (May 6, 2019). Fisher College of Business Working Paper No. 2019-03-014. Available at SSRN: https://ssrn.com/abstract=3384816 or http://dx.doi.org/10.2139/ssrn.3384816

Sai Ma

Board of Governors of the Federal Reserve ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2870 (Phone)

HOME PAGE: http://saimaecon.com

Shaojun Zhang (Contact Author)

The Ohio State University

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://sites.google.com/view/zhangshaojun

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics