Capital Inflow Shocks and House Prices: Aggregate and Regional Evidence from Korea

31 Pages Posted: 27 Aug 2013 Last revised: 4 Nov 2016

Multiple version iconThere are 3 versions of this paper

Date Written: June 16, 2013

Abstract

Over the course of the recent global financial crisis, emerging economies experienced massive swings in capital inflows. In this paper, we estimate a VAR model to assess the impact of capital inflow shocks, which are identified using a set of sign restrictions, on house prices in Korea. We base the analysis on three alternative measures of capital inflows: net total inflows, net portfolio inflows and gross total inflows. The results suggest that capital inflow shocks have a significantly positive and persistent effect on real house prices. Although shocks to capital inflows are found to be substantially more important for Korean asset markets than for other OECD countries, their overall explanatory power is modest. Using regional house price data we also show that capital inflow shocks have an asymmetric effect on property markets across the seven largest Korean cities and across different parts of Seoul.

Keywords: Capital Inflows, House Prices, Monetary Policy, Sign Restrictions, VAR

JEL Classification: F32, F41, E32

Suggested Citation

Tillmann, Peter, Capital Inflow Shocks and House Prices: Aggregate and Regional Evidence from Korea (June 16, 2013). Journal of East Asian Economic Integration Vol. 17, No. 2 (June 2013) 129-159, Available at SSRN: https://ssrn.com/abstract=2316548

Peter Tillmann (Contact Author)

University of Giessen ( email )

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