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How relevant are capital flows for house prices in emerging economies?

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  • Marco Hernandez-Vega

    (Banco de Mexico)

Abstract

This work studies the impact of Foreign Direct Investment and portfolio flows on house prices of emerging market economies using a static factors panel VARX model. The results show that an increase in both Foreign Direct Investment and portfolio flows leads to higher house prices but that portfolio flows have a more persistent effect. This work also finds that mortgage credit, as a proxy for residential investment, is an essential variable in house price dynamics because it has a higher positive impact than any of the other endogenous variables. The results are robust to different model specifications, such as adding additional lags or changing the order in which the endogenous variables enter the model.

Suggested Citation

  • Marco Hernandez-Vega, 2023. "How relevant are capital flows for house prices in emerging economies?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(4), pages 965-986, November.
    • Handle: RePEc:spr:weltar:v:159:y:2023:i:4:d:10.1007_s10290-022-00487-w
    DOI: 10.1007/s10290-022-00487-w
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    1. Yin-Wong Cheung & Kenneth K. Chow & Matthew S. Yiu, 2017. "Effects of capital flow on the equity and housing markets in Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 22(3), pages 332-349, August.
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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