House price decoupling in East Asia and the Pacific: Trilemma versus dilemma revisited

Abstract

This paper investigates the extent to which local property prices co-move with global property prices for selected East Asia and the Pacific (EAP) economies. Having documented the existence of house price synchronicity, the main focus of the paper is on the extent to which global financial integration in the housing markets in the EAP economies is characterized by the monetary trilemma versus dilemma proposition. The paper finds that capital controls possess effective insulating properties while exchange rate flexibility does not, offering some evidence in favor of the dilemma rather than the trilemma. The paper also finds that borrower-based macroprudential policies can reduce synchronicity when capital accounts are open.