Non-US Global Banks and Dollar (Co-)Dependence: How Housing Markets Became Internationally Synchronized
University of Zurich, Department of Economics, Working Paper No. 374, 2020
54 Pages Posted: 15 Jan 2021
Date Written: December 2020
US net capital inflows drive the international synchronization of house price growth. An increase (decrease) in US net capital inflows improves (tightens) US dollar funding conditions for non-US global banks, leading them to increase (decrease) foreign lending to third-party borrowing countries. This induces a synchronization of lending across borrowing countries, which translates into an international synchronization of mortgage credit growth and, ultimately, house price growth. Importantly, this synchronization is driven by non-US global banks’ common but heterogenous exposure to US dollar funding conditions, not by the common exposure of borrowing countries to non-US global banks. Our results identify a novel channel of international transmission of US dollar funding conditions: As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more dependent on US dollar funding exhibit higher house price synchronization.
Keywords: House price synchronization, US dollar funding, global US dollar cycle, global imbalances, capital inflows, global banks, global banking network
JEL Classification: F34, F36, G15, G21
Suggested Citation: Suggested Citation