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Non-US global banks and dollar (co-)dependence: how housing markets became internationally synchronized


Ehlers, Torsten; Hoffmann, Mathias; Raabe, Alexander (2020). Non-US global banks and dollar (co-)dependence: how housing markets became internationally synchronized. Working paper series / Department of Economics 374, University of Zurich.

Abstract

US net capital inflows drive the international synchronization of house price growth. An increase (decrease) in US net capital inflows improves (tightens) US dollar funding conditions for non-US global banks, leading them to increase (decrease) foreign lending to third-party borrowing countries. This induces a synchronization of lending across borrowing countries, which translates into an international synchronization of mortgage credit growth and, ultimately, house price growth. Importantly, this synchronization is driven by non-US global banks’ common but heterogenous exposure to US dollar funding conditions, not by the common exposure of borrowing countries to non-US global banks. Our results identify a novel channel of international transmission of US dollar funding conditions: As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more dependent on US dollar funding exhibit higher house price synchronization.

Abstract

US net capital inflows drive the international synchronization of house price growth. An increase (decrease) in US net capital inflows improves (tightens) US dollar funding conditions for non-US global banks, leading them to increase (decrease) foreign lending to third-party borrowing countries. This induces a synchronization of lending across borrowing countries, which translates into an international synchronization of mortgage credit growth and, ultimately, house price growth. Importantly, this synchronization is driven by non-US global banks’ common but heterogenous exposure to US dollar funding conditions, not by the common exposure of borrowing countries to non-US global banks. Our results identify a novel channel of international transmission of US dollar funding conditions: As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more dependent on US dollar funding exhibit higher house price synchronization.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F34, F36, G15, G21
Uncontrolled Keywords:House price synchronization, US dollar funding, global US dollar cycle, global imbalances, capital inflows, global banks, global banking network
Language:English
Date:December 2020
Deposited On:06 Jan 2021 15:36
Last Modified:06 Jan 2021 15:36
Series Name:Working paper series / Department of Economics
Number of Pages:53
ISSN:1664-705X
OA Status:Green
Official URL:https://www.econ.uzh.ch/en/research/workingpapers.html?paper-id=1056

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