Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies Ambrogio Cesa-Bianchi1
Luis Felipe Cespedes2
Alessandro Rebucci3
1 Bank of England Universidad Adolfo Ibanez 3 Johns Hopkins University Carey Business School 2
Royal Economic Society Annual Conference 30 March 2015 Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Disclaimer
The views expressed in this paper are solely those of the authors and should not be taken to represent those of the Bank of England.
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Motivation
I
Booms and busts in the non-tradable sector, often fuelled by excessive credit expansion and overvalued exchange rates
I
Surges and sudden reversals in cross-border capital flows
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Motivation
I
Booms and busts in the non-tradable sector, often fuelled by excessive credit expansion and overvalued exchange rates
I
Surges and sudden reversals in cross-border capital flows
I
Housing and global liquidity • Housing: quintessential non-tradable asset/durable good • Global liquidity: important determinant of international capital flows
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Contribution
I
New quarterly house price data set for 33 emerging markets from 1990 to 2012
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Contribution
I
New quarterly house price data set for 33 emerging markets from 1990 to 2012
I
New set of house price stylized facts
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Contribution
I
New quarterly house price data set for 33 emerging markets from 1990 to 2012
I
New set of house price stylized facts
I
Identify a “global liquidity shock” on house prices, and trace its impact on the macro-economy in both AEs and EMs using a panel VAR
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Main results
I
House price inflation tends to behave like consumption growth, • equity prices behave more like GDP
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Main results
I
House price inflation tends to behave like consumption growth, • equity prices behave more like GDP
I
Relative to AEs, house price inflation in EMs is higher, more volatile, less persistent, less synchronized across countries; and more associated with external variables
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Main results
I
House price inflation tends to behave like consumption growth, • equity prices behave more like GDP
I
Relative to AEs, house price inflation in EMs is higher, more volatile, less persistent, less synchronized across countries; and more associated with external variables
I
The impact of a global liquidity shock on consumption, house prices and the current account is much larger in EMs than in AEs
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Literature review
I
Global house price cycle • [Andre (2010); Hirata et al. (2012); Igan and Loungani (2012); Claessens et al.
(2012); Cesa-Bianchi (2013)] I
House prices and capital flows • [Laibson and Mollerstrom (2010); Favilukis et al. (2012); Adamet al. (2012);
Ferrero (2012); Aizenman and Jinjarak (2009); Gete (2009); Sa et al. (2014)] I
Global liquidity • [Landau (2013),Rey (2013); Bruno and Shin (2014); Cerutti et al. (2014)]
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Outline
I
Data
I
Stylized facts
I
Global Liquidity
I
Model
I
Interpreting results
I
Conclusions
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Data I
Unbalanced panel of 57 time series with varying coverage from 1990:Q1–2012:Q4
I
Source: OECD, BIS, Dallas FED international house price databases National central banks, national statistical offices, and academic publications on housing markets
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Data I
Unbalanced panel of 57 time series with varying coverage from 1990:Q1–2012:Q4
I
Source: OECD, BIS, Dallas FED international house price databases National central banks, national statistical offices, and academic publications on housing markets
I
Value added • Additional countries: Argentina, Brazil, Chile, Colombia, Czech Republic, India,
Serbia, Taiwan, and Uruguay • Historical data: China, Estonia, Hong Kong, Hungary, Indonesia, Lithuania,
Malaysia, Philippines, Poland, Slovakia, Slovenia, and Thailand
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Data Map: Advanced Economies (a) Advanced Economies AUS 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
AUT 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1
BEL 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
CAN 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
DNK 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
FIN
FRA 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
DEU 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
GRC 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
IRL 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
ITA 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
JPN 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
LUX 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
MLT 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
NLD 3 3 3 3 3 3 3 3 3 3 1 1 1 1 1 1 1 1 1 1 1 1 1
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
NZL 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
NOR 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
PRT 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
ESP 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
SWE CHE GBR USA 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
ISL
1 1 1 1 1 1 1 1 1 1 1 1 1
9
Data Map: Emerging Economies (b) Emerging Economies 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ARG CHL COL HRV HKG KOR MYS SGP ZAF URY THA BGR IDN ISR PHL TWN SVN SRB UKR EST HUN LTU PER CHN CZE POL BRA IND LVA RUS SVK MEX MAR 3 2 2 1 2 1 3 1 1 2 2 2 2 1 2 1 3 1 1 2 2 2 2 2 1 2 1 3 1 1 2 2 2 2 2 1 1 1 3 1 1 2 2 1 2 2 2 1 1 1 3 1 1 2 2 1 2 1 2 2 2 2 2 1 1 1 3 1 1 2 2 1 2 1 2 2 2 2 2 2 1 1 1 3 1 1 2 2 1 2 1 2 2 2 3 3 2 2 2 1 1 1 3 1 1 2 2 1 2 1 2 2 2 3 3 2 2 2 2 1 1 1 3 1 1 2 2 1 2 1 2 2 2 3 3 2 2 1 1 2 2 2 1 1 1 1 1 1 2 2 1 2 1 2 2 2 3 3 2 2 1 1 2 2 2 2 2 1 1 1 1 1 1 2 2 1 2 1 2 2 2 3 3 2 2 1 1 2 2 3 2 2 2 1 1 1 1 1 1 2 2 1 2 1 2 2 2 3 3 2 2 1 1 2 2 3 2 3 1 1 2 2 2 1 1 1 1 1 1 2 2 1 1 1 2 2 2 3 3 2 2 1 1 2 2 3 2 3 1 1 3 2 2 2 1 1 1 1 1 1 2 2 1 1 1 2 2 2 3 3 2 2 1 1 2 2 3 2 3 1 1 3 2 2 2 1 1 1 1 1 1 2 2 1 1 1 2 2 2 3 3 2 2 1 1 2 2 3 2 3 1 1 3 2 2 2 1 1 1 1 1 1 2 2 1 1 1 2 2 2 3 2 1 2 1 1 2 2 1 2 3 1 1 1 1 2 2 2 1 1 1 1 1 1 2 2 1 1 1 2 2 2 3 2 1 2 1 1 2 2 1 2 2 1 1 1 1 1 2 2 2 1 1 1 1 1 1 2 2 1 1 1 2 2 1 3 2 1 1 1 1 2 2 1 2 2 1 1 1 1 1 2 2 2 1 1 1 1 1 1 2 1 1 1 1 1 2 1 3 2 1 1 1 1 2 1 1 2 2 1 1 1 1 1 2 2 2 1 1 1 1 1 1 2 1 1 1 1 1 2 1 3 2 1 1 1 1 2 1 1 2 2 1 1 1 1 1 2 2 2 1 1 1 1 1 1 2 1 1 1 1 1 2 1 3 2 1 1 1 1 2 1 1 2 2 1 1 1 1 1 2 2 2 1 1 1 1 1 1 2 1 1 1 1 1 2 1 3 2 1 1 1 1 1 1 1 2 2 1 1 1 1 1 2 2 2 1 1 1 1 1 1 3 1 1 1 1 1 2 1 3 2 1 1 1 1 1 1 1 2 2 1 1 1 1 1
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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EMs grow faster than AEs (a) Advanced Economies
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.4% 0.5% 1.9% 0.6 0.2
0.1% 1.3% 10.1% 0.4 0.7
0.5% 0.6% 1.1% 0.2 0.2
0.5% 0.6% 1.1% 0.3 0.3
(b) Emerging Markets
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.7% 0.6% 4.8% 0.3 0.1
0.5% 1.4% 15.0% 0.3 0.5
1.1% 1.2% 2.4% 0.1 0.1
0.9% 1.2% 2.1% 0.3 0.2
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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EMs are much more volatile than AEs (a) Advanced Economies
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.4% 0.5% 1.9% 0.6 0.2
0.1% 1.3% 10.1% 0.4 0.7
0.5% 0.6% 1.1% 0.2 0.2
0.5% 0.6% 1.1% 0.3 0.3
(b) Emerging Markets
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.7% 0.6% 4.8% 0.3 0.1
0.5% 1.4% 15.0% 0.3 0.5
1.1% 1.2% 2.4% 0.1 0.1
0.9% 1.2% 2.1% 0.3 0.2
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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House price inflation in EMs is less persistent than in AEs (a) Advanced Economies
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.4% 0.5% 1.9% 0.6 0.2
0.1% 1.3% 10.1% 0.4 0.7
0.5% 0.6% 1.1% 0.2 0.2
0.5% 0.6% 1.1% 0.3 0.3
(b) Emerging Markets
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.7% 0.6% 4.8% 0.3 0.1
0.5% 1.4% 15.0% 0.3 0.5
1.1% 1.2% 2.4% 0.1 0.1
0.9% 1.2% 2.1% 0.3 0.2
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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House price inflation largely country-specific (non tradability) (a) Advanced Economies
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.4% 0.5% 1.9% 0.6 0.2
0.1% 1.3% 10.1% 0.4 0.7
0.5% 0.6% 1.1% 0.2 0.2
0.5% 0.6% 1.1% 0.3 0.3
(b) Emerging Markets
Mean Median St. Dev. Auto Corr. Pairwise Corr.
House Prices
Equity Prices
Consumption
GDP
0.7% 0.6% 4.8% 0.3 0.1
0.5% 1.4% 15.0% 0.3 0.5
1.1% 1.2% 2.4% 0.1 0.1
0.9% 1.2% 2.1% 0.3 0.2
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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House price inflation strongly pro-cyclical, leads the monetary policy cycle, some (weak) association with CA and RER in AEs (a) Advanced Economies GDP
Consumption
CPI
Cross−border Bank Flows 0.5
0.5
0.5
0.5
0.25
0.25
0.25
0.25
0
0
0
0
−0.25
−0.25 −4−3−2−1 0 +1+2+3+4
−0.25 −4−3−2−1 0 +1+2+3+4
Equity Price
−0.25 −4−3−2−1 0 +1+2+3+4
Short−term Int. Rate
−4−3−2−1 0 +1+2+3+4
Real Eff. Exch. Rate
Current Account / GDP
0.5
0.5
0.5
0.5
0.25
0.25
0.25
0.25
0
0
0
0
−0.25
−0.25 −4−3−2−1 0 +1+2+3+4
−0.25 −4−3−2−1 0 +1+2+3+4
−0.25 −4−3−2−1 0 +1+2+3+4
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
−4−3−2−1 0 +1+2+3+4
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Similar patterns in EMs: weaker association with monetary cycle and RER; stronger association with CA (b) Emerging Economies GDP
Consumption
CPI
Cross−border Bank Flows 0.5
0.5
0.5
0.5
0.25
0.25
0.25
0.25
0
0
0
0
−0.25
−0.25 −4−3−2−1 0 +1+2+3+4
−0.25 −4−3−2−1 0 +1+2+3+4
Equity Price
−0.25 −4−3−2−1 0 +1+2+3+4
Short−term Int. Rate
−4−3−2−1 0 +1+2+3+4
Real Eff. Exch. Rate
Current Account / GDP
0.5
0.5
0.5
0.5
0.25
0.25
0.25
0.25
0
0
0
0
−0.25
−0.25 −4−3−2−1 0 +1+2+3+4
−0.25 −4−3−2−1 0 +1+2+3+4
−0.25 −4−3−2−1 0 +1+2+3+4
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
−4−3−2−1 0 +1+2+3+4
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A bird-eye view of the cycle in AEs and EMs House price inflation (5−year cross−country moving average) 2.5 2 1.5 1
Percent
0.5 0 −0.5 −1 −1.5 −2 −2.5
1975
1980
1985
1990
Advanced economies
1995
2000
2005
2010
Emerging economies
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Global Liquidity: Definition
I
Global liquidity (GL) defined as “ease of funding in global financial markets” by BIS
I
Credit supply factors that affect the provision of cross-border credit by global banks
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Global Liquidity: Data
18
30
16
20
14
10 Percent
Trillions US DOllars
International cross−border claims of BIS reporting banks vis−a−vis the banking sector
12
0
10
−10
8
−20
6 1995
1999
2003 2007 2011 Constant prices (2008:Q2 US Dollars)
−30 1995 1999 2003 Growth rate (year−on−year)
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
2007
2011
19
Global Liquidity: Interpretation
I
Literature typically distinguishes between global (“push”) factors for capital flows from country-specific (“pull”) factors
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Global Liquidity: Interpretation
I
Literature typically distinguishes between global (“push”) factors for capital flows from country-specific (“pull”) factors
I
We think of GL as a vector of “push” global credit supply shifters
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Global Liquidity: Interpretation
I
Literature typically distinguishes between global (“push”) factors for capital flows from country-specific (“pull”) factors
I
We think of GL as a vector of “push” global credit supply shifters • US monetary policy =⇒ US Interest rates, US M2 • Global banks funding conditions =⇒ TED spread, Leverage, Yield curve slope • Risk appetite and uncertainty =⇒ VIX
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Global Liquidity: Linkages with the macroeconomy I
GL shifts the international supply of credit =⇒ Increased cross-border bank credit
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Global Liquidity: Linkages with the macroeconomy I
GL shifts the international supply of credit =⇒ Increased cross-border bank credit
I
In a domestic (open) economy: • • • • •
I
Current account deteriorates Exchange rate appreciates House prices appreciate Consumption increases Interest rates response is theoretically ambiguous
House prices and exchange rate appreciation can amplify the initial shock via the relaxation of (domestic or foreign) credit constraints
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Model: Panel VAR for all countries (excluding the US) I
VAR model for country i includes • • • • • •
GLOBAL LIQUIDITY REAL CONSUMPTION REAL HOUSE PRICE REAL SHORT-TERM INT. RATE REAL EFF. EXCH. RATE CURRENT ACC. / GDP
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Model: Panel VAR for all countries (excluding the US) I
VAR model for country i includes • • • • • •
GLOBAL LIQUIDITY REAL CONSUMPTION REAL HOUSE PRICE REAL SHORT-TERM INT. RATE REAL EFF. EXCH. RATE CURRENT ACC. / GDP
I
System in log-levels, two lags, deterministic trends
I
Mean group estimator =⇒ Dynamic panel data models with heterogenous slope coefficients
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Identification: Global Liquidity Shock I
Challenge: disentangling push versus pull. Identification is achieved in two steps
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Identification: Global Liquidity Shock I
Challenge: disentangling push versus pull. Identification is achieved in two steps
I
Aggregation: no individual country is large enough to affect total cross-border banking credit significantly within a given quarter • Cholesky decomposition with GL ordered first
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Identification: Global Liquidity Shock I
Challenge: disentangling push versus pull. Identification is achieved in two steps
I
Aggregation: no individual country is large enough to affect total cross-border banking credit significantly within a given quarter • Cholesky decomposition with GL ordered first
I
External instruments approach [Stock and Watson (2012) and Mertens and Ravn (2013)]: no global common factor “pulls in” capital • Use the drivers of GL as instruments • Isolate the variation of the GL reduced-form residuals that are due only to supply
“push” factors Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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In AEs, GL shock increases house prices, consumption, and affects external sector. Monetary policy tightened as a response (a) Advanced Economies Global Liquidity
Consumption 0.15
0.5
0.1
Percent
Percent
1 Percent
House Price 0.2
0.05 0
0
5
10 15 Quarters Real Int. Rate
20
10 15 Quarters Real Eff. Exch. Rate
20
20
0.2
0.05 0 −0.05
0 −0.02
Percent
Percent
Percent
0.02
5 10 15 Quarters Current Account / GDP 0.1
0.4
0.04
0 −0.1
5
0.08 0.06
0.1
0 5
10 15 Quarters
20
−0.1 5
10 15 Quarters
20
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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10 15 Quarters
20
24
In EMs, effects much larger. Transmission mechanism also possibly different (b) Emerging Economies Global Liquidity
Consumption
1
House Price
0.3
0.6
0.2
0.4
0.6 0.4
0 5
10 15 Quarters Real Int. Rate
20
0.2
−0.2 5
10 15 Quarters Real Eff. Exch. Rate
0.1
20
0.3
Percent
−0.1
0.1 0
5
10 15 Quarters
20
20
0 −0.05 −0.1 −0.15
−0.1
−0.2
5 10 15 Quarters Current Account / GDP 0.05
0.2
0
Percent
Percent
0.1
0
0.2 0
Percent
Percent
Percent
0.8
−0.2 5
10 15 Quarters
20
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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10 15 Quarters
20
25
Multipliers are sizable
I
GL falls by 1 percent of world GDP (US$ 1 trillion, or about 10 percent from its current level of US$10-15 trillions)
I
House price falls by 2/3 of a percentage point in AEs and more than 3% in EMs
I
Consumption falls about 0.7% in AEs and more than 1.5% in EMs
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Inspecting the transmission mechanism
I
How can we explain the different response of AEs and EMs?
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Inspecting the transmission mechanism
I
How can we explain the different response of AEs and EMs?
I
Conjecture: global liquidity shock relaxes borrowing constraints through increased value of collateral (more so in EMs) • House prices and exchange rates
=⇒ frictions in domestic and international
financial contracting
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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Inspecting the transmission mechanism
I
How can we explain the different response of AEs and EMs?
I
Conjecture: global liquidity shock relaxes borrowing constraints through increased value of collateral (more so in EMs) • House prices and exchange rates
=⇒ frictions in domestic and international
financial contracting I
A (crude) counterfactual exercise: “close the channels” associated with financial frictions and look at the counterfactual estimated impulse
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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HP channel affects consumption in AEs (a) Advanced Economies Global Liquidity
Consumption
1
0.6 0.4 0.2
0.08
Percent
Percent
Percent
0.1
0.1
0.8
0
House Price
0.06 0.04
0.05 0
0.02 5
10 15 Quarters Real Int. Rate
0
20
5 10 15 Quarters Real Eff. Exch. Rate
20
5 10 15 Quarters Current Account / GDP
20
0.04 0.3
0.02
0.02 Percent
0.04
Percent
Percent
0.06
0.2 0.1
0 −0.02 −0.04 −0.06
0
−0.08
0 5
10 Quarters
15
20
5
10 Quarters
15
20
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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10 Quarters
15
20
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HP channel affects consumption in EMs, but also CA and RER (b) Emerging Economies Global Liquidity
Consumption
House Price 0.5
0.2
0.4
0.6
0.15
0.3
0.4
0.1 0.05
0.2 0
Percent
0.8 Percent
Percent
1
0.2 0.1 0
0 5
10 15 Quarters Real Int. Rate
20
5 10 15 Quarters Real Eff. Exch. Rate
0.05
20
5 10 15 Quarters Current Account / GDP
20
0.05
0.15 Percent
Percent
Percent
0 0
0.1 0.05
−0.05
5
10 Quarters
15
20
0
−0.05 −0.1 −0.15
5
10 Quarters
15
20
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
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10 Quarters
15
20
29
Closing RER channel in AEs destabilizes consumption and HP (a) Advanced Economies Global Liquidity
Consumption
House Price
1
Percent
0.6 0.4
Percent
0.1
0.8 Percent
0.1
0.05
0 −0.05
0.2 0
0.05
5
10 15 Quarters Real Int. Rate
0
20
−0.1 5
10 15 Quarters Real Eff. Exch. Rate
20
5 10 15 Quarters Current Account / GDP
20
0.04 0.3
0.04 0.02
0.02 Percent
Percent
Percent
0.06
0.2 0.1
0 −0.02 −0.04 −0.06
0
−0.08
0 5
10 Quarters
15
20
5
10 Quarters
15
20
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
5
10 Quarters
15
20
30
Closing RER channel in EMs stabilizes consumption and HP (b) Emerging Economies Global Liquidity
Consumption
House Price 0.5
0.2
0.4
0.6
0.15
0.3
0.4
0.1 0.05
0.2 0
Percent
0.8 Percent
Percent
1
0.2 0.1 0
0 5
10 15 Quarters Real Int. Rate
20
5 10 15 Quarters Real Eff. Exch. Rate
20
5 10 15 Quarters Current Account / GDP
20
0.05
0.05
0.15 Percent
Percent
Percent
0 0
0.1 0.05
−0.05
5
10 Quarters
15
20
0
−0.05 −0.1 −0.15
5
10 Quarters
15
20
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
5
10 Quarters
15
20
31
Conclusions
I
Consumption and house prices in EMs respond strongly to liquidity conditions at the center (more than AEs)
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
32
Conclusions
I
Consumption and house prices in EMs respond strongly to liquidity conditions at the center (more than AEs)
I
The channel of transmission might be quite distinct, important role of the exchange rate for EMs
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
32
Conclusions
I
Consumption and house prices in EMs respond strongly to liquidity conditions at the center (more than AEs)
I
The channel of transmission might be quite distinct, important role of the exchange rate for EMs
I
The Fed is about to turn its stance . . . • but there is plenty of scope for using domestic policies
Cesa-Bianchi, Cespedes & Rebucci, “Global Liquidity, House Prices, and the Macroeconomy”
32
