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The changing role of house price dynamics over the business cycle

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  • Dufrénot, Gilles
  • Malik, Sheheryar

Abstract

In this paper, we attempt to analyse the relationship between house price dynamics and the business cycle. Employing a time-varying transition probability Markov switching framework, we provide empirical evidence that house price growth may prove a useful leading indicator for turning point detection. Focusing on three countries, the US, UK and Spain, we furthermore provide evidence that although potentially informative from an overall perspective in business cycle modelling, the significance of signals contained in house prices may not be symmetric across the identified high growth and low growth states. In addition, we suggest a possible range of values for house price deflation which may trigger a recession the following period.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 5 ()
Pages: 1960-1967

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1960-1967

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Business cycles; Leading indicators; Housing; Markov switching;

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Cited by:
  1. Tsai, I-Chun, 2013. "The asymmetric impacts of monetary policy on housing prices: A viewpoint of housing price rigidity," Economic Modelling, Elsevier, vol. 31(C), pages 405-413.
  2. Agnello, Luca & Dufrénot, Gilles & Sousa, Ricardo M., 2013. "Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices," Economic Modelling, Elsevier, vol. 34(C), pages 25-36.

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