Spillovers of U.S. monetary policy shocks on housing prices in nine emerging economies and their stabilizing capital controls

Abstract

Purpose

This paper aims  to examine the dynamic spillovers of Federal Reserve’s monetary policy shocks on real house price indices in nine emerging economies, namely China, Brazil, Thailand, Chile, Peru, Mexico, Malaysia, Indonesia and South Africa.

Design/methodology/approach

The authors use the local projection method with a panel data set of these countries spanning from 2005Q3 to 2019Q4 to estimate local projections at each period rather than extrapolating into distant periods from a given model.

Findings

A pure tightening monetary policy shock is associated with a decline in housing prices in the nine emerging markets. However, the optimistic information about the US macro-economic fundamentals that is embedded in the tightening announcement would increase housing prices. Therefore, the net transmission effects of the US policy rate shocks may be smaller than what previous studies reported. In addition, the authors also find that capital control actions executed by emerging countries are effective in mitigating the spillovers of the US monetary policy.

Originality/value

First, the paper aims to investigate the effects of US monetary policy shocks on housing prices in emerging economies which have not received sufficient scholarly attention. Second, the analysis focuses on both pure monetary policy shocks and the Federal Reserve's information on economic fundamentals contained in its rate announcements. Third, the authors also assess the effectiveness of capital controls imposed by policymakers in emerging countries in mitigating the spillovers of US policy rate shocks on housing prices in emerging markets.

Citation

Nguyen, T.B., Le, C.V. and Nguyen, T.A.D. (2024), "Spillovers of U.S. monetary policy shocks on housing prices in nine emerging economies and their stabilizing capital controls", International Journal of Housing Markets and Analysis, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJHMA-06-2024-0089