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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by David Kohn

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August 2012International Capital Flows and House Prices: Theory and Evidence
with Jack Favilukis, Sydney C. Ludvigson, Stijn Van Nieuwerburgh
in Housing and the Financial Crisis, Edward L. Glaeser and Todd Sinai, editors
This chapter examines the empirical relationship between house price changes and international capital flows, focusing on the boom-bust period in the housing market from 2000 to 2010. Foreign capital flows into safe US securities—US Treasury and Agency bonds—played a key role in understanding the low interest rates in the last decade and quantitatively account for all of the upward trend in the US net foreign liability position over this period. It is argued that easy credit caused the run-up in housing prices.
January 2012International Capital Flows and House Prices: Theory and Evidence
with Jack Favilukis, Sydney C. Ludvigson, Stijn Van Nieuwerburgh: w17751
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, r...

Published: International Capital Flows and House Prices: Theory and Evidence, Jack Favilukis, David Kohn, Sydney C. Ludvigson, Stijn Van Nieuwerburgh. in Housing and the Financial Crisis, Glaeser and Sinai. 2013

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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