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Do house price developments spillover across euro area countries? Evidence from a global VAR

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  • Vansteenkiste, Isabel
  • Hiebert, Paul
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    Abstract

    This paper empirically assesses the prospects for house price spillovers in the euro area, where co-movement in house prices across countries may be particularly relevant given a general trend with monetary union toward increasing linkages in trade, financial markets, and general economic conditions. A global VAR is estimated for three housing demand variables (real house prices, real per capita income, and the cost of borrowing, captured by a real long-term interest rate) on the basis of quarterly data for 7 euro area countries (Belgium, Germany, Ireland, Spain, France, Italy and the Netherlands), which together comprise nearly 90% of euro area GDP, over the period 1971–2009. The results suggest limited house price spillovers in the euro area, albeit with evidence of some overshooting in the first year after the shock, followed by a long run aggregate euro area impact of country-specific changes in real house prices related in part to the country’s economic weight. This contrasts with the impacts of a shock to domestic long-term interest rates, causing a permanent shift in house prices after 2–3 years. Underlying this aggregate development are rather heterogeneous house price spillovers at the country level, with a strong importance for weights – either economic or geographic – in governing their general magnitude. More generally, the impact of financing costs on house prices appears to have grown though time.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Housing Economics.

    Volume (Year): 20 (2011)
    Issue (Month): 4 ()
    Pages: 299-314

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    Handle: RePEc:eee:jhouse:v:20:y:2011:i:4:p:299-314

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    Web page: http://www.elsevier.com/locate/inca/622881

    Related research

    Keywords: House price; Global VAR (GVAR); International linkages;

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    References

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    1. Vladimir Klyuev, 2008. "What Goes Up Must Come Down? House Price Dynamics in the United States," IMF Working Papers 08/187, International Monetary Fund.
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    11. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
    12. Vansteenkiste, Isabel, 2007. "Regional housing market spillovers in the US: lessons from regional divergences in a common monetary policy setting," Working Paper Series 0708, European Central Bank.
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    Cited by:
    1. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
    2. Kajuth, Florian & Knetsch, Thomas A. & Pinkwart, Nicolas, 2013. "Assessing house prices in Germany: Evidence from an estimated stock-flow model using regional data," Discussion Papers 46/2013, Deutsche Bundesbank, Research Centre.

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