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The Importance of Real and Nominal Shocks on the UK Housing Market

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  • Seema Narayan

    (Senior Lecturer in Economics, RMIT University, Australia)

  • Paresh Kumar Narayan

    (Faculty of Business and Law, Deakin University, Australia)

Abstract

The goal of this paper is to examine the responsiveness of the UK housing market to real and nominal shocks. To achieve this goal, we use a structural VAR model based on quarterly data for the period 1957:1¡V2009:4. We find that, in response to an interest rate shock, aggregate and modern house prices fall sharply over the first 4 years and do not recover to their pre-shock level. In response to a real GDP shock, both house prices react in a positive inverted U-shaped manner. Finally, we find that an inflation shock has a U-shaped negative impact on aggregate and modern house prices in the UK.

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Bibliographic Info

Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 10 (2011)
Issue (Month): 3 (December)
Pages: 219-234

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Handle: RePEc:ijb:journl:v:10:y:2011:i:3:p:219-234

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Keywords: housing market; UK; interest rate; real GDP; inflation;

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  1. Josep Llu�s Carrion-i-Silvestre & Tom�s del Barrio-Castro & Enrique L�pez-Bazo, 2005. "Breaking the panels: An application to the GDP per capita," Econometrics Journal, Royal Economic Society, vol. 8(2), pages 159-175, 07.
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  6. Lastrapes, W.D., 2000. "The Real Price of Housing and Money Supply Shocks: Time Series Evidence and Theoretical Simulations," Papers 00-479, Georgia - College of Business Administration, Department of Economics.
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  11. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  12. Carrion-i-Silvestre, Josep Lluis, 2003. "Breaking date misspecification error for the level shift KPSS test," Economics Letters, Elsevier, vol. 81(3), pages 365-371, December.
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