House Price Synchronization and Financial Openness : A Dynamic Factor Model Approach

This paper investigates the developments in house price synchronization across countries bya dynamic factor model using a country- and city-level dataset, and examines what drives thesynchronization. The empirical results indicate that: (i) the degree of synchronization hasbeen rising since the 1970s, and (ii) a large heterogeneity in the degree of synchronizationexists across countries and cities. A panel and cross-sectional regression analysis show thatthe heterogeneity of synchronization is partly accounted for by the progress in financial andtrade openness. Also, the city-level analysis implies that the international synchronization ismainly driven by the city-level connectivity between large and international cities