NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

International Capital Flows and House Prices: Theory and Evidence

Jack Favilukis, David Kohn, Sydney C. Ludvigson, Stijn Van Nieuwerburgh

Chapter in NBER book Housing and the Financial Crisis (2013), Edward L. Glaeser and Todd Sinai, editors (p. 235 - 299)
Conference held November 17-18, 2011
Published in August 2013 by University of Chicago Press
© 2013 by the National Bureau of Economic Research

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.

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This paper was revised on August 24, 2012

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This chapter first appeared as NBER working paper w17751, International Capital Flows and House Prices: Theory and Evidence, Jack Favilukis, David Kohn, Sydney C. Ludvigson, Stijn Van Nieuwerburgh
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