International Capital Flows and House Prices: Theory and Evidence / Jack Favilukis, David Kohn, Sydney C. Ludvigson, Stijn Van Nieuwerburgh.

Format:

Book

Author/Creator:

Favilukis, Jack.

Contributor:

National Bureau of Economic Research.

Kohn, David.

Ludvigson, Sydney C.

Van Nieuwerburgh, Stijn.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17751.

NBER working paper series no. w17751

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

The last fifteen years have been marked by a dramatic boom-bust cycle in real estate prices, accompanied by economically large fluctuations in international capital flows. We argue that changes in international capital flows played, at most, a small role in driving house price movements in this episode and that, instead, the key causal factor was a financial market liberalization and its subsequent reversal. Using observations on credit standards, capital flows, and interest rates, we find that a bank survey measure of credit supply, by itself, explains 53 percent of the quarterly variation in house price growth in the U.S. over the period 1992-2010, while it explains 66 percent over the period since 2000. By contrast, once we control for credit supply, various measures of capital flows, real interest rates, and aggregate activity--collectively--add less than 5% to the fraction of variation explained for these same movements in home values. Credit supply retains its strong marginal explanatory power for house price movements over the period 2002-2010 in a panel of international data, while capital flows have no explanatory power.

Notes:

Print version record

January 2012.