Skip to main content
  • This website sets cookies on your device. To find out more about how we use cookies please refer to our Privacy and Cookie Policy. By continuing to use the site, we’ll assume that you are content for us to set these on your device.
  • Close
Home > Research > Working Paper No. 522: Global liquidity, house prices and the macroeconomy: evidence from advanced and emerging economies - Ambrogio Cesa-Bianchi, Luis F Cespedes and Alessandro Rebucci
 

Working Paper No. 522: Global liquidity, house prices and the macroeconomy: evidence from advanced and emerging economies - Ambrogio Cesa-Bianchi, Luis F Cespedes and Alessandro Rebucci

23 January 2015

​Working Paper No. 522
Global liquidity, house prices and the macroeconomy: evidence from advanced and emerging economies
Ambrogio Cesa-Bianchi, Luis F Cespedes and Alessandro Rebucci

In this paper we first compare house price cycles in advanced and emerging economies using a new quarterly house price data set covering the period 1990-2012. We find that house prices in emerging economies grow faster, are more volatile, less persistent and less synchronised across countries than in advanced economies. We also find that they correlate with capital flows more closely than in advanced economies. We then condition the analysis on an exogenous change to a particular component of capital flows: global liquidity, broadly understood as a proxy for the international supply of credit. We identify this shock by aggregating bank-to-bank cross-border credit flows and by using the external instrumental variable approach introduced by Stock and Watson and Mertens and Ravn. We find that in emerging markets a global liquidity shock has a much stronger impact on house prices and consumption than in advanced economies. We finally show that 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; in emerging markets, by appreciating the exchange rate and hence supporting the international borrowing capacity of the economy.

Share