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Partial pooling with cross-country priors: An application to house price shocks

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  • Roth, Markus

Abstract

A structural Bayesian vector autoregression model predicts that - when accompanied by a decline in consumer confidence - a one-percent decrease in house prices is associated with a contraction of economic activity by 0.2 to 1.2 percent after one year. Results point to important second-round effects and additional exercises highlight the amplifying role of (i ) the mortgage rate and (ii ) consumers' expectations. A novel econometric approach exploits information available from the cross section. Shrinkage towards a cross-country average model helps to compensate for small country samples and reduces estimation uncertainty. As a by-product, the method delivers measures of cross-country heterogeneity.

Suggested Citation

  • Roth, Markus, 2020. "Partial pooling with cross-country priors: An application to house price shocks," Discussion Papers 06/2020, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:062020
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    More about this item

    Keywords

    Bayesian model averaging; dummy observations; house price shocks;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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