Capital inflows and asset prices: Evidence from emerging Asia

Abstract

The withdrawal of foreign capital from emerging countries at the height of the recent financial crisis and its quick return sparked a debate about the impact of capital flow surges on asset markets. This paper addresses the response of property prices to an inflow of foreign capital. For that purpose we estimate a panel VAR on a set of Asian emerging market economies, for which the waves of inflows were particularly pronounced, and identify capital inflow shocks based on sign restrictions. Our results suggest that capital inflow shocks have a significant effect on the appreciation of house prices and equity prices. Capital inflow shocks account for -roughly -twice the portion of overall house price changes they explain in OECD countries. We also address cross-country differences in the house price responses to shocks, which are most likely due to differences in the monetary policy response to capital inflows.

Macro-Financial Effects of Portfolio Flows: Malaysia's Experience

“…The impulse response results are qualitatively in line with those by Jansen (2000), Berument and Dincer (2004), Yang (2011), Brana et al (2012), Tillmann (2013) and Rhee and Yang (2014), for which comparable impulse response functions are reported. Nonetheless, the speed of reaction and persistence differ considerably.…”

“…As in Forbes and Warnock (2012), Tillmann (2013) and Koepke (2015), the portfolio flow shock is partially driven by push-factors, where global financial and macroeconomic conditions lead investors to channel funds to EMs. On the other hand, the price level ( ) and bank credit ( ) do not contemporaneously react to foreign shocks.…”

“…We estimate Structural Vector Autoregressive (SVAR) and Autoregressive Distributed For instance, Tillmann (2013) finds that capital inflows account for approximately twice the variation in property prices in emerging Asian economies compared to OECD economies.…”

“…Kim and Yang (2011) and Tillmann (2013) find that higher portfolio inflows boosts asset prices and the exchange rate in emerging East Asian countries. Brana, Djigbenou, and Prat (2012) find that excess global liquidity contributes significantly to higher GDP and inflation, while the effects on equity and property prices are less clear.…”

Inflation-hedging properties of regional Chinese real estate market: evidence from 35 cities in China

“…Tillmann (2013) point out that an OLS estimator with fixed-effects is potentially biased in a dynamic panel setting if coefficients on the endogenous variables differ across areas.…”