Do exchange rate arrangements and capital controls influence international capital flows and housing prices in Asia?

• Published in: Journal of Asian economics Vol. 39; pp. 1 - 18
• Main Authors: Ohno, Sanae, Shimizu, Junko
• Format: Journal Article
• Language: English
• Published: Greenwich Elsevier Inc 01.08.2015; Elsevier Science Ltd
• Subjects: Asia; Capital; Capital control; Capital movement; China (People's Republic); Classification; Exchange rate regime; Foreign exchange rates; Housing; Housing price; Housing prices; International capital flow; Liquidity; Markets; Prices; Regulation; Studies; Asia; Capital control; F31; International capital flow; Housing price; F33; F15; Exchange rate regime
• ISSN: 1049-0078; 1873-7927
• DOI: 10.1016/j.asieco.2015.04.004

•We investigate the influence of international capital flows on Asian housing prices.•Exchange rate regimes and capital controls may cause the housing price hike in Asia.•Reviewing capital control and exchange rate system are important for Asian countries.•The expected currency appreciation was likely to link with the housing price surge. This paper investigates the influence of international capital flows on housing prices in eight Asian countries, including China. We focus on determining whether exchange rate arrangements and capital regulations influence capital inflows and housing prices. Our results show that an arrangement to restrain the fluctuation of the exchange rate and capital controls has the potential to raise housing prices in Asia. The strong prospect of the Chinese yuan's appreciation also pushed up housing prices in China. Another expected reason for the increase in capital inflows into Asian markets is the expansion of global liquidity. Such capital flows often have a sensitive reaction to market sentiment, and an increase in asset market volatility caused by the liquidity squeeze decreases Asian housing prices. These results suggest the need to review capital controls and future exchange rate system options for Asian countries.