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Modeling the Housing Market in OECD Countries

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  • Philip Arestis
  • Ana Rosa Gonzalez

Abstract

Recent episodes of housing bubbles, which occurred in several economies after the burst of the United States housing market, suggest studying the evolution of housing prices from a global perspective. We utilize a theoretical model for the purposes of this contribution, which identifies the main drivers of housing price appreciation—for example, income, residential investment, financial elements, fiscal policy, and demographics. In the second stage of our analysis, we test our theoretical hypothesis by means of a sample of 18 Organisation for Economic Co-operation and Development (OECD) countries from 1970 to 2011. We employ the vector error correction econometric technique in terms of our empirical analysis. This allows us to model the long-run equilibrium relationship and the short-run dynamics, which also helps to account for endogeneity and reverse-causality problems.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_764.

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Date of creation: May 2013
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Handle: RePEc:lev:wrkpap:wp_764

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Keywords: Empirical Modeling; Housing Market; Vector Error Correction Modeling; OECD Countries;

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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.
  2. Bharat Barot & Zan Yang, 2004. "House Prices and Housing Investment in Sweden and the UK. Econometric analysis for the period 1970-1998," Macroeconomics, EconWPA 0409022, EconWPA.
  3. Plamen Iossifov & Martin Cihák & Amar Shanghavi, 2008. "Interest Rate Elasticity of Residential Housing Prices," IMF Working Papers 08/247, International Monetary Fund.
  4. Andrea Nobili & Francesco Zollino, 2012. "A structural model for the housing and credit markets in Italy," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 887, Bank of Italy, Economic Research and International Relations Area.
  5. Gavin Cameron & John Muellbauer, 2001. "Earnings, unemployment, and housing in Britain," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 203-220.
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