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Housing Cycles and Exchange Rates

Author

Listed:
  • Sai Ma

    (Division of International Finance, Federal Reserve Board of Governors, Washington, District of Columbia 20551)

  • Shaojun Zhang

    (Department of Finance, Fisher College of Business, The Ohio State University, Columbus, Ohio 43212)

Abstract

This paper documents that the ratio of residential-to-nonresidential investment is a strong in-sample and out-of-sample predictor for the dollar up to 12 quarters. The predictability is robust to a battery of additional checks and holds for other G10 currencies. We explain the predictability in an analytical model with time-varying housing preference, productivity, and volatility. In the model, the U.S. housing investment share is higher during periods with higher growth and lower uncertainty, corresponding to lower future nontradable prices, dollar index, and excess returns. We find strong empirical support for the channel. Alternative explanations, including the business and financial cycle, find less empirical support.

Suggested Citation

  • Sai Ma & Shaojun Zhang, 2024. "Housing Cycles and Exchange Rates," Management Science, INFORMS, vol. 70(9), pages 5646-5666, September.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:9:p:5646-5666
    DOI: 10.1287/mnsc.2023.4932
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    Cited by:

    1. Funk, Bryana & Amer, Saud A. & Ward, Frank A., 2023. "Sustainable aquifer management for food security," Agricultural Water Management, Elsevier, vol. 281(C).
    2. Gouhari, Saeeda & Forrest, Alan & Roberts, Michaela, 2021. "Cost-effectiveness analysis of forest ecosystem services in mountain areas in Afghanistan," Land Use Policy, Elsevier, vol. 108(C).
    3. Sai Ma & Tim Schmidt-Eisenlohr & Shaojun Zhang, 2020. "The Effect of the Dollar on Trade Prices," CESifo Working Paper Series 8727, CESifo.

    More about this item

    Keywords

    housing; exchange rate; predictability; risk premium;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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