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Time-varying role of macroeconomic shocks on house prices in the US and UK: evidence from over 150 years of data

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journal contribution
posted on 15.03.2019, 11:06 by Vasilios Plakandaras, Rangan Gupta, Constantinos Katrakilidis, Mark Wohar
In this paper, we study the effect of macroeconomic shocks in the determination of house prices. Focusing on the US and the UK housing market, we employ time-varying vector autoregression models using Bayesian methods covering the periods of 1830–2016 and 1845–2016, respectively. We consider real house prices, output growth, short-term interest rates and inflation as input variables in order to unveil the effect of macroeconomic shocks on house prices. From the examination of the impulse responses of house prices on macroeconomic shocks, we find that technology shocks dominate in the US real estate market, while their effect is unimportant in the UK. In contrast, monetary policy drives most of the evolution of the UK house prices, while transitory house supply shocks are unimportant in either country. These findings are further corroborated with the analysis of conditional volatilities and correlations with macroeconomic shocks. Overall, we are able to unveil the dynamic linkages in the relationship of the macroeconomy and house prices. Over time, we analyze the variations in economic events happening at the imposition of the shock and uncover characteristics missed in the time-invariant approaches of previous studies.

History

School

  • Business and Economics

Department

  • Business

Published in

Empirical Economics

Volume

58

Pages

2249–2285

Citation

PLAKANDARAS, V. ... et al, 2018. Time-varying role of macroeconomic shocks on house prices in the US and UK: evidence from over 150 years of data. Empirical Economics, 58: 2249–2285.

Publisher

© Springer

Version

AM (Accepted Manuscript)

Publisher statement

This is a post-peer-review, pre-copyedit version of an article published in Empirical Economics. The final authenticated version is available online at: https://doi.org/10.1007/s00181-018-1581-x

Acceptance date

16/10/2018

Publication date

2018-10-23

ISSN

0377-7332

eISSN

1435-8921

Language

en

Exports

Loughborough Publications

Exports