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House Price Shock and Business Cycle: The French Case

Author

Listed:
  • Asma Ben Saad

    (Orleans economic laboratory, University of Orleans)

  • Ahmad Alqatan

    (Arab Open University)

  • Muhammad Arslan

    (KIMEP University)

Abstract

This study examined the relationship between house prices and the business cycle. Specifically, we examined the effect of house price and stock price in the French business cycle. After presenting the transmission channels from house price to the business cycle, we analyzed the cyclical properties of house prices and compared them with the Gross Domestic Product (GDP) cycle. The question arises: are fluctuations in economic activity more sensitive to a real estate price shock (property wealth effect) or a stock price shock (stock market wealth effect)? We collected the data over the 1980Q1-2015Q4 period and investigated the effects of house price and stock price shocks on French GDP by employing the Structural VAR model. We found the evidence that house price strongly affects the GDP cycle. Indeed, their response is significantly more important than the stock price, suggesting that the housing market might contribute to the persistent propagation of the shocks hitting the economic system. The study has important implications for both academia and policymakers and offers new insights into the French experience.

Suggested Citation

  • Asma Ben Saad & Ahmad Alqatan & Muhammad Arslan, 2021. "House Price Shock and Business Cycle: The French Case," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 68(1), pages 115-127, March.
    • Handle: RePEc:aic:saebjn:v:68:y:2021:i:1:p:115-127:n:1
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