Debt vulnerabilities and house price responses to external shocks

Abstract

This paper investigates whether the responses of house prices to external shocks, including US monetary policy and global geopolitical risk shocks vary, depending on country-specific vulnerabilities. We find that the responses of emerging market economies’ housing prices to both US monetary policy shocks and geopolitical risk shocks are higher in magnitude and duration than those of advanced economies. We also demonstrate that emerging market economies’ housing price responses to both shocks are much more robust in more vulnerable economies. In contrast, advanced economies’ responses are relatively less affected by debt level.