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Housing market volatility in the OECD area: Evidence from VAR based return decompositions

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  • Tom Engsted

    ()
    (Aarhus University and CREATES)

  • Thomas Q. Pedersen

    ()
    (Aarhus University and CREATES)

Abstract

Vector-autoregressive models are used to decompose housing returns in 18 OECD countries into cash ?ow (rent) news and discount rate (return) news. Only for two countries - Germany and Ireland - do changing expectations of future rents play a dominating role in explaining housing return volatility. For the majority of countries news about future returns is the main driver, and both real interest rates and risk premia play an important role in accounting for housing market volatility. Bivariate cross-country correlations and principal components analyses indicate that part of the return movements have a common factor among the majority of countries. However, in a minority of countries (Germany, Japan, and the Netherlands) return movements have been basically unrelated to return movements in other countries.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2013-04.

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Length: 26
Date of creation: 02 2013
Date of revision:
Handle: RePEc:aah:create:2013-04

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Housing return volatility; variance decomposition; dynamic Gordon growth model; innovation and news components; VAR model; principal components; OECD countries;

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