As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Alexander Raabe, PhD student in International Economics.

Abstract: What is driving international spillovers of house price shocks ? I show that common global lenders facilitate these spillovers beyond direct spillovers among borrowing countries. Global lenders incur losses when banks in borrowing countries experience losses in response to negative house price shocks. The effect on house prices in other borrowing countries depends on whether global lenders mitigate the losses by deleveraging or by reallocating their portfolios towards safer borrowing countries (flight to safety). I build a theoretical model to disentangle these two spillover channels. I test the model empirically and find that the portfolio reallocation effect exceeds the deleveraging effect, implying an increase in house prices in borrowing countries other than those hit by the negative house price shock. Selected supply side macroprudential measures can shield borrowing countries from these spillovers. The findings highlight the importance for borrowing countries to monitor their exposure to common global lenders with lending portfolios susceptible to house price shocks.