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McHouse prices, capital hoovering, and real exchange rate exposures

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  • Roger Bowden

Abstract

House prices are both cause and effect of the real exchange rate. In the form of implied rentals or service prices, they are a good proxy for non tradables prices, which in turn are signs of generalised expenditure inflation and hence underlying real exchange rate pressures. The causal impact is because rising house prices suck in offshore funding, markedly so in recent times, creating a capital account driven nominal exchange rate. The hoovering effect is responsive to interest rate differentials, leading to a more focused view of the role of uncovered interest parity, as an offshore response to internally generated demand for funds rather than externally generated hot money chasing spot rate margins. The overall result is likely to be chronic macroeconomic instability over the inter run, creating challenges for corporate risk management, monetary control and industrial policy.

Suggested Citation

  • Roger Bowden, 2004. "McHouse prices, capital hoovering, and real exchange rate exposures," New Zealand Economic Papers, Taylor & Francis Journals, vol. 38(1), pages 119-139.
    • Handle: RePEc:taf:nzecpp:v:38:y:2004:i:1:p:119-139
    DOI: 10.1080/00779950409544397
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    References listed on IDEAS

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    1. Bowden, Roger, 2026. "Rise of the new export economy: What will it mean for NZ exchange rates, inflation and interest rates?," Working Paper Series 33503, Victoria University of Wellington, School of Economics and Finance.
    2. Bowden, Roger & Lorimer, Dawn, 2026. "Monetary Policy and the exchange rate: The Kiwi that had to fly," Working Paper Series 33474, Victoria University of Wellington, School of Economics and Finance.
    3. Bowden, Roger, 2026. "Instrument Insufficiency and Economic Stabilisation," Working Paper Series 33499, Victoria University of Wellington, School of Economics and Finance.
    4. Roger Bowden & Jennifer Zhu, 2008. "The agribusiness cycle and its wavelets," Empirical Economics, Springer, vol. 34(3), pages 603-622, June.
    5. Bowden, Roger & Zhu, Jennifer & Cho, Jin Seo, 2026. "Knowing A Bit but Not Too Much: Incomplete Directional models and their use in Forecasting and Hedging," Working Paper Series 33487, Victoria University of Wellington, School of Economics and Finance.

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