Author(s)

Yu Guo

Corresponding Author

Yu Guo

Abstract

Using quarterly data on the U.S. federal funds rate (FEDFUNDS), the U.S. home price index (CSUSHPINSA), and net capital inflow (BOP), this report empirically tests the linkages between U.S. monetary policy, the real estate market, and international capital flows from 1986 to 2014 via correlation analysis and ordinary least squares (OLS) regression. The study found that the United States' net capital inflow exhibited significant cyclical fluctuations. There is a significant positive correlation between the home price index and capital inflows, indicating that overseas funds tend to chase returns on real estate assets. In contrast, the negative relationship between the federal funds rate and capital inflows is relatively weak. The conclusion demonstrates that, within an open financial system, international capital allocation is predominantly influenced by asset prices rather than by basic spreads. The positive feedback mechanism may exacerbate the risk of asset bubbles. Accordingly, the report proposes strengthening macroprudential supervision of real estate finance, paying attention to international spillovers from monetary policy, strengthening global financial coordination, and optimizing the structure of capital flows.

Keywords

Monetary policy; Real estate prices; International capital flows