IDEAS home Printed from https://ideas.repec.org/a/wly/jmoncb/v47y2015is1p221-256.html
   My bibliography  Save this article

Capital Inflows and the U.S. Housing Boom

Author

Listed:
  • FILIPA SÁ
  • TOMASZ WIELADEK

Abstract

We estimate an open‐economy vector autoregressive (VAR) model to study the effect of capital‐inflow shocks on the U.S. housing market. We look at different external shocks that generate capital inflows to the U.S., in particular “saving‐glut” shocks and foreign monetary‐policy expansions. The shocks are identified with theoretically robust sign restrictions derived from an open‐economy dynamic stochastic general equilibrium (DSGE) model. Our findings suggest that capital inflows that result from “saving‐glut” shocks have a positive and persistent effect on real house prices and real residential investment.

Suggested Citation

  • Filipa Sá & Tomasz Wieladek, 2015. "Capital Inflows and the U.S. Housing Boom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 221-256, March.
  • Handle: RePEc:wly:jmoncb:v:47:y:2015:i:s1:p:221-256
    DOI: 10.1111/jmcb.12200
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jmcb.12200
    Download Restriction: no

    File URL: https://libkey.io/10.1111/jmcb.12200?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 975-1009.
    2. Klaus Adam & Pei Kuang & Albert Marcet, 2012. "House Price Booms and the Current Account," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 77-122.
    3. Filipa Sá & Francesca Viani, 2013. "Shifts in Portfolio Preferences of International Investors: An Application to Sovereign Wealth Funds," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 868-885, November.
    4. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233-267.
    5. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
    6. Enders, Zeno & Müller, Gernot J. & Scholl, Almuth, 2011. "How do fiscal and technology shocks affect real exchange rates?: New evidence for the United States," Journal of International Economics, Elsevier, vol. 83(1), pages 53-69, January.
    7. Marta Bańbura, 2008. "Large Bayesian VARs," 2008 Meeting Papers 334, Society for Economic Dynamics.
    8. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
    9. Renée Fry & Adrian Pagan, 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 938-960, December.
    10. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
    11. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    12. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2014. "The International Dimension Of Productivity And Demand Shocks In The Us Economy," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 153-176, February.
    13. Fratzscher, Marcel & Juvenal, Luciana & Sarno, Lucio, 2010. "Asset prices, exchange rates and the current account," European Economic Review, Elsevier, vol. 54(5), pages 643-658, July.
    14. Pesaran, M. Hashem & Schuermann, Til & Smith, L. Vanessa, 2009. "Forecasting economic and financial variables with global VARs," International Journal of Forecasting, Elsevier, vol. 25(4), pages 642-675, October.
    15. Evi Pappa, 2009. "The Effects Of Fiscal Shocks On Employment And The Real Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 217-244, February.
    16. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
    17. Gert Peersman & Roland Straub, 2009. "Technology Shocks And Robust Sign Restrictions In A Euro Area Svar," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 727-750, August.
    18. Andrea Ferrero, 2015. "House Price Booms, Current Account Deficits, and Low Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 261-293, March.
    19. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
    20. David Laibson & Johanna Mollerstrom, 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis," Economic Journal, Royal Economic Society, vol. 120(544), pages 354-374, May.
    21. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    22. Faust, Jon & Rogers, John H., 2003. "Monetary policy's role in exchange rate behavior," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1403-1424, October.
    23. Zettelmeyer, Jeromin, 2004. "The impact of monetary policy on the exchange rate: evidence from three small open economies," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 635-652, April.
    24. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
    25. Canova, Fabio & Paustian, Matthias, 2011. "Business cycle measurement with some theory," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 345-361.
    26. Pesaran, M. Hashem & Schuermann, Til & Smith, L. Vanessa, 2009. "Rejoinder to comments on forecasting economic and financial variables with global VARs," International Journal of Forecasting, Elsevier, vol. 25(4), pages 703-715, October.
    27. University of Chicago & Pedro Gete, 2009. "Housing Markets and Current Account Dynamics," 2009 Meeting Papers 427, Society for Economic Dynamics.
    28. Gete, Pedro, 2009. "Housing Markets and Current Account Dynamics," MPRA Paper 20957, University Library of Munich, Germany, revised 24 Feb 2010.
    29. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    30. Farrant, Katie & Peersman, Gert, 2006. "Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 939-961, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Franjo, Luis, 2018. "International interest rates, the current account and housing markets," Economic Modelling, Elsevier, vol. 75(C), pages 268-280.
    2. Klug, Thorsten & Mayer, Eric & Schuler, Tobias, 2021. "The corporate saving glut and the current account in Germany," Working Paper Series 2586, European Central Bank.
    3. Huber, Florian & Punzi, Maria Teresa, 2020. "International Housing Markets, Unconventional Monetary Policy, And The Zero Lower Bound," Macroeconomic Dynamics, Cambridge University Press, vol. 24(4), pages 774-806, June.
    4. Thorsten Klug & Eric Mayer & Tobias Schuler, 2018. "The Corporate Saving Glut and the Current Account in Germany," ifo Working Paper Series 280, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Luca Agnello & Vitor Castro & Ricardo M. Sousa, 2020. "The Housing Cycle: What Role for Mortgage Market Development and Housing Finance?," The Journal of Real Estate Finance and Economics, Springer, vol. 61(4), pages 607-670, November.
    6. Gregor Bäurle & Rolf Scheufele, 2019. "Credit cycles and real activity: the Swiss case," Empirical Economics, Springer, vol. 56(6), pages 1939-1966, June.
    7. Alok Johri & Muhebullah Karimzada, 2015. "Learning Efficiency Shocks, Knowledge Capital and the Business Cycle : A Bayesian Evaluation," Department of Economics Working Papers 2015-11, McMaster University.
    8. Huber, Florian & Punzi, Maria Teresa, 2017. "The shortage of safe assets in the US investment portfolio: Some international evidence," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 318-336.
    9. Itzhak Ben-David & Pascal Towbin & Sebastian Weber, 2019. "Inferring Expectations from Observables: Evidence from the Housing Market," NBER Working Papers 25702, National Bureau of Economic Research, Inc.
    10. Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2020. "Capital flows in the euro area and TARGET2 balances," Journal of Banking & Finance, Elsevier, vol. 113(C).
    11. Bian, Timothy Yang & Gete, Pedro, 2015. "What drives housing dynamics in China? A sign restrictions VAR approach," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 96-112.
    12. Avdjiev, Stefan & Binder, Stephan & Sousa, Ricardo, 2021. "External debt composition and domestic credit cycles," Journal of International Money and Finance, Elsevier, vol. 115(C).
    13. Mr. Damien Puy & Ms. Yu Shi & Mr. Anil Ari, 2020. "Foreign Demand and Local House Prices: Evidence from the US," IMF Working Papers 2020/043, International Monetary Fund.
    14. Baumeister, Christiane & Hamilton, James D., 2021. "Reprint: Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 114(C).
    15. Maria Chiara Cavalleri & Boris Cournède & Volker Ziemann, 2019. "Housing markets and macroeconomic risks," OECD Economics Department Working Papers 1555, OECD Publishing.
    16. Maas, Daniel & Mayer, Eric & Rüth, Sebastian K., 2018. "Current account dynamics and the housing cycle in Spain," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 22-43.
    17. McGurk, Zachary, 2020. "US real estate inflation prediction: Exchange rates and net foreign assets," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 53-66.
    18. Daniel L. Tortorice, 2019. "Long-Run Expectations, Learning and the US Housing Market," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 497-531, October.
    19. Baumeister, Christiane & Hamilton, James D., 2020. "Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 109(C).
    20. Rabah Arezki & Thorsten Beck & Robert Deyoung & John V. Duca & Prakash Loungani & Anthony Murphy, 2015. "Conference on Housing, Stability, and the Macroeconomy: International Perspectives," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 1-11, March.
    21. Nico Valckx & Mr. Sohaib Shahid & Mitsuru Katagiri & Andrea Deghi, 2020. "Predicting Downside Risks to House Prices and Macro-Financial Stability," IMF Working Papers 2020/011, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sa, Filipa & Wieladek, Tomasz, 2010. "Monetary policy, capital inflows and the housing boom," Bank of England working papers 405, Bank of England.
    2. Maas, Daniel & Mayer, Eric & Rüth, Sebastian, 2015. "Current account dynamics and the housing boom and bust cycle in Spain," W.E.P. - Würzburg Economic Papers 94, University of Würzburg, Chair for Monetary Policy and International Economics.
    3. Maas, Daniel & Mayer, Eric & Rüth, Sebastian K., 2018. "Current account dynamics and the housing cycle in Spain," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 22-43.
    4. Auer, Simone, 2019. "Monetary policy shocks and foreign investment income: Evidence from a large Bayesian VAR," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 142-166.
    5. Baumeister, Christiane & Hamilton, James D., 2020. "Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 109(C).
    6. Baumeister, Christiane & Hamilton, James D., 2021. "Reprint: Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 114(C).
    7. Gehrke, Britta & Yao, Fang, 2017. "Are supply shocks important for real exchange rates? A fresh view from the frequency-domain," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 99-114.
    8. Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2020. "Capital flows in the euro area and TARGET2 balances," Journal of Banking & Finance, Elsevier, vol. 113(C).
    9. Gregor Bäurle & Rolf Scheufele, 2019. "Credit cycles and real activity: the Swiss case," Empirical Economics, Springer, vol. 56(6), pages 1939-1966, June.
    10. Timmer , Yannick, 2015. "TARGET2 balances and the adjustment of capital flows in the Euro area," European Economic Letters, European Economics Letters Group, vol. 4(1), pages 15-19.
    11. Dumrongrittikul, Taya & Anderson, Heather M., 2016. "How do shocks to domestic factors affect real exchange rates of Asian developing countries?," Journal of Development Economics, Elsevier, vol. 119(C), pages 67-85.
    12. Hilde C. Bjørnland & Jørn I. Halvorsen, 2014. "How does Monetary Policy Respond to Exchange Rate Movements? New International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(2), pages 208-232, April.
    13. Pascal Towbin & Mr. Sebastian Weber, 2015. "Price Expectations and the U.S. Housing Boom," IMF Working Papers 2015/182, International Monetary Fund.
    14. Enders, Zeno & Müller, Gernot J. & Scholl, Almuth, 2011. "How do fiscal and technology shocks affect real exchange rates?: New evidence for the United States," Journal of International Economics, Elsevier, vol. 83(1), pages 53-69, January.
    15. Lutz Kilian, 2013. "Structural vector autoregressions," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 22, pages 515-554, Edward Elgar Publishing.
    16. Saeidinezhad, Elham, 2014. "The International Spillover of Fiscal and Technology Shocks before the Crisis: The case of the UK and Italy," MPRA Paper 98556, University Library of Munich, Germany.
    17. Florian Huber & Jesus Crespo-Cuaresma & Martin Feldkircher, 2014. "Forecasting with Bayesian Global Vector Autoregressions," ERSA conference papers ersa14p25, European Regional Science Association.
    18. Marek Rusnak & Tomas Havranek & Roman Horvath, 2013. "How to Solve the Price Puzzle? A Meta-Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 37-70, February.
    19. Pedro Gete, 2015. "Housing demands, savings gluts and current account dynamics," Globalization Institute Working Papers 221, Federal Reserve Bank of Dallas.
    20. Dumrongrittikul, Taya & Anderson, Heather & Vahid, Farshid, 2019. "The global effects of productivity gains in Asian emerging economies," Economic Modelling, Elsevier, vol. 83(C), pages 127-140.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jmoncb:v:47:y:2015:i:s1:p:221-256. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.