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Causal relationship between asset prices and output in the US: Evidence from state-level panel Granger causality test

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Author Info

  • Furkan Emirmahmutoglu

    ()
    (Department of Econometrics, Gazi University, Turkey)

  • Nicholas Apergis

    ()
    (Department of Banking and Financial Management, University of Piraeus, Greece)

  • Beatrice D. Simo-Kengne

    ()
    (Department of Economics, University of Pretoria)

  • Tsangyao Chang

    ()
    (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

Abstract

This paper investigates the causal relationship between asset prices and per capita output across 50 US states and the District of Columbia over 1975 to 2012. A bootstrap panel Granger causality approach is applied on a trivariate VAR comprising of real house prices, real stock prices and real per capita personal income (proxying output), which allows us to account not only for heterogeneity and cross-sectional dependence, but also for interdependency between the two asset markets. Empirical results reveal the existence of a unidirectional causality running from both asset prices to output. This confirms the leading indicator property of asset prices for the real economy, while also substantiating the wealth and/or collateral transmission mechanism. Moreover, the absence of reverse causation from the personal income per capita to both housing and stock prices tend to suggest that non-economic fundamentals may have played an important role in the formation of bubbles in these markets.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201411.

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Length: 30 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:pre:wpaper:201411

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Keywords: House prices; stock prices; output; granger causality;

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References

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Citations

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Cited by:
  1. Naceur Naguez & Jean-Luc Prigent, 2014. "Kappa Performance Measures with Johnson Distributions," Working Papers 2014-510, Department of Research, Ipag Business School.
  2. Wendy Nyakabawo & Stephen M. Miller & Mehmet Balcilar & Sonali Das & Rangan Gupta, 2013. "Temporal Causality between House Prices and Output in the U. S.: A Bootstrap Rolling-Window Approach," Working Papers 201329, University of Pretoria, Department of Economics.
  3. Zied Ftiti & Essahbi Essaadi, 2014. "The inflation Targeting effect on the inflation series: A New Analysis Approach of evolutionary spectral analysis," Working Papers 2014-516, Department of Research, Ipag Business School.
  4. Goodness C. Aye & Rangan Gupta & Stephen M. Miller & Mehmet Balcilar, 2014. "Forecasting US Real Private Residential Fixed Investment Using a Large Number of Predictors," Working papers 2014-10, University of Connecticut, Department of Economics.
  5. Beatrice D. Simo-Kengne & Stephen M. Miller & Rangan Gupta, 2013. "Evolution of Monetary Policy in the US: The Role of Asset Prices," Working papers 2013-20, University of Connecticut, Department of Economics, revised Dec 2013.
  6. Plakandaras, Vasilios & Gupta, Rangan & Papadimitriou, Theophilos & Gogas, Periklis, 2014. "Forecasting the U.S. Real House Price Index," DUTH Research Papers in Economics 10-2014, Democritus University of Thrace, Department of Economics.
  7. Frederic Teulon, 2014. "A la recherche de Maurice Allais," Working Papers 2014-548, Department of Research, Ipag Business School.
  8. Mohamed Arouri & Shawkat Hammoudeh & Fredj Jawadi & Duc Khuong Nguyen, 2014. "Financial Linkages between U.S. Sector Credit Default Swaps Markets," Working Papers 2014-553, Department of Research, Ipag Business School.

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