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

See all articles by Torsten Ehlers

Torsten Ehlers

Bank for International Settlements (BIS)

Mathias Hoffmann

University of Zurich

Alexander Raabe

University of Geneva - Graduate Institute, Geneva (IHEID); European Stability Mechanism

Date Written: December 2020

Abstract

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

Ehlers, Torsten and Hoffmann, Mathias and Raabe, Alexander, Non-US Global Banks and Dollar (Co-)Dependence: How Housing Markets Became Internationally Synchronized (December 2020). University of Zurich, Department of Economics, Working Paper No. 374, 2020, Available at SSRN: https://ssrn.com/abstract=3762381 or http://dx.doi.org/10.2139/ssrn.3762381

Torsten Ehlers (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Mathias Hoffmann

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Alexander Raabe

University of Geneva - Graduate Institute, Geneva (IHEID) ( email )

Geneva
Switzerland

European Stability Mechanism ( email )

6a Circuit de la Foire Internationale
L-1347
Luxembourg

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