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Housing Cycle and Exchange Rates

Author

Listed:
  • Ma, Sai

    (Board of Governors of the Federal Reserve)

  • Zhang, Shaojun

    (The Ohio State University)

Abstract

This paper documents that U.S. housing capital investment is a strong negative predictor of U.S. dollar changes and excess returns over the next six months to five years. Other advanced economies exhibit similar patterns. Moreover, positive housing supply shocks predict lower prices of housing services and nontradables relative to that of tradables, as well as higher output growth and macroeconomic volatility. An analytical model shows that these channels generate the exchange rate predictability under incomplete and complete markets, respectively. Cross-sectionally, currencies with higher loadings on the U.S. housing cycle carry higher average currency premia, compensating the U.S. investor for bearing the U.S. long-run consumption risk.

Suggested Citation

  • Ma, Sai & Zhang, Shaojun, 2019. "Housing Cycle and Exchange Rates," Working Paper Series 2019-14, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2019-14
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    Cited by:

    1. Sai Ma & Tim Schmidt-Eisenlohr & Shaojun Zhang, 2020. "The Effect of the Dollar on Trade Prices," CESifo Working Paper Series 8727, CESifo.
    2. Funk, Bryana & Amer, Saud A. & Ward, Frank A., 2023. "Sustainable aquifer management for food security," Agricultural Water Management, Elsevier, vol. 281(C).
    3. 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).

    More about this item

    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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