Global Liquidity, House Prices, and the Macroeconomy Evidence.pdf

WP/ 15/23 Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies Ambrogio Cesa-Bianchi, Luis Felipe Cespedes, and Alessandro Rebucci © 2015 International Monetary Fund WP/ 15/23 IMF Working Paper Research Department Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies Prepared by Ambrogio Cesa-Bianchi, Luis Felipe Cespedes, and Alessandro Rebucci1 Authorized for distribution by Prakash Loungani January 2015 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract 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 synchronized 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. We find that a global liquidity shock, identified by aggregating bank-to-bank cross border flows and by using the external instrumental variable approach of Stoc