Capital Flows, House Prices, and the Macroeconomy Evidence from - PowerPoint PPT Presentation

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Capital Flows, House Prices, and the Macroeconomy Evidence from Advanced and Emerging Market Economies 1 A. Cesa-Bianchi 1 L.F. Cespedes 2 A. Rebucci 3 1 Bank of England 2 Univ. Adolfo Ibanez 3 JHU Carey Business School and IDB 4 June 2014 Bundesbank Work Shop, Eltville 1 Paper prepared for the Dallas FED, JMCB, IMF Conference on ”Housing, Stability, and the Macroeconomy: International Perspectives”. The views expressed in this paper are those of the authors, and not necessarily those of the Bank of England, The Dallas FED, or the IDB. 1 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Housing quintessential non-tradable asset & non-tradable sector at the core of financial crises... SPAIN IRELAND 200 0 180 10 150 −5 147 3 100 −10 113 −3 50 −15 80 −10 00 03 06 09 12 00 03 06 09 12 SOUTH AFRICA HONG KONG 160 15 250 10 127 7 183 3 93 −2 117 −3 60 −10 50 −10 77 80 83 86 89 92 95 98 01 Real House Price Index (left ax.) Current Account / GDP (right ax.) 2 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions ...capital abundant and highly mobile with limited investment opportunities 3 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Contribution ◮ New comprehensive, quarterly house price data set comprising 57 advanced and developing economies ◮ A new set of house price stylized facts ◮ Characteristics of house price booms ◮ Transmission of a “global liquidity shock” 4 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Related Literature ◮ Global house price cycle ◮ House prices and global imbalances ◮ Global liquidity 5 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Preview of the results ◮ Relative to AEs, house prices in EMEs are • Slower and more associated with fundametals, more volatile and less persistent • More associated with external variables ◮ Relative to AEs, house price booms in EMEs are • Larger, more closely associated with loose global liquidity conditions ◮ A global liquidity shock has • A stronger impact on consumption in EMEs • Qualitatively different impact on external variables 6 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Outline ◮ House Price Data & Descriptive statistics ◮ Event Study ◮ Global Liquidity ◮ VAR Analysis ◮ Conclusion 7 / 32

Intro Data & Statistics Event Study Global Liquidity VAR Analysis Conclusions Data ◮ Unbalanced panel of 57 time series with varying coverage from 1970.I–2012.IV ◮ Source: OECD house price database, the BIS new property price data set, national central banks, national statistical offices, and academic publications on housing markets ◮ Value added relative to readily available datasets • Additional countries: Argentina, Brazil, Chile, Colombia, Croatia, India, Peru, Taiwan, Ukraine and Uruguay • Additional historical data: Austria, Czech Republic, Estonia, Hong Kong, Hungary, Indonesia, Malaysia, Philippines, Poland, Serbia, Singapore, Slovakia, Slovenia and Thailand. 8 / 32