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The Effects of Capital Controls on Housing Prices

Author

Listed:
  • Yang Zhou

    (Graduate School of Economics, Kobe University and Junir Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)

Abstract
Policymakers increasingly use capital control policies (i.e., capital flow management) to manage capital flows. However, whether the implementation of such policies can effectively affect housing prices and to what extent is less discussed. In this paper, we study the effects of four types of granular capital control polices on housing prices using a large cross-country panel of 53 economies from 1995 to 2017. We find that the estimated effects of capital controls are distinct for different capital flow types and flow directions, but most capital control indices appear to reduce housing prices. Specifically, we find that capital controls have asymmetric effects on housing prices for advanced and emerging economies. The negative effects of capital controls on housing prices are mainly driven by pre-crisis subsample. This means that capital controls have been in effect several times before Global Financial Crisis. We also estimate the effects for boom and slump periods respectively and find that capital control policies are implemented in an acyclical way. Since there exists endogeneity for capital control on real estate transactions, we further use inverse probability weights to rebalance capital control actions and find that this method can weaken the negative effects on housing prices, and the attenuation effects can be attributed to endogenous factors.

Suggested Citation

  • Yang Zhou, 2022. "The Effects of Capital Controls on Housing Prices," Discussion Paper Series DP2022-29, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2022-29
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2022-29.pdf
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    More about this item

    Keywords

    Capital control policy; Housing price; Local projections; Inverse probability; Weighted regression adjusted estimator;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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