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Effects of monetary policy on the REIT returns: Evidence from the United Kingdom

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  • Fatnassi, Ibrahim
  • Slim, Chaouachi
  • Ftiti, Zied
  • Ben Maatoug, Abderrazek

Abstract

In this paper, we analyze whether a monetary policy based on three main variables (inflation, money supply, and output gap) has a nonlinear impact on real estate investment trust (REIT) markets. In addition, we extend our analysis to examine whether these monetary policy components impact the possibility of boom and bust regimes occurring in the market. Empirically, we propose different Markov-switching model variants to determine the nonlinear time-varying impact of monetary policy on the REIT market. Our results show the monetary policy environment is supposed to affect, on one hand, the REIT returns and, on the other hand, the possibility of boom and bust markets. We prove that expansionary monetary policy has an impact only in the case of boom market. However, an increase in the inflation rate decreases the probability of remaining in the bust regime. As a consequence, we have already outlined several monetary transmission mechanisms that show house prices to have important effects on aggregate demand. Our results confirm that REIT markets are not efficient.

Suggested Citation

  • Fatnassi, Ibrahim & Slim, Chaouachi & Ftiti, Zied & Ben Maatoug, Abderrazek, 2014. "Effects of monetary policy on the REIT returns: Evidence from the United Kingdom," Research in International Business and Finance, Elsevier, vol. 32(C), pages 15-26.
  • Handle: RePEc:eee:riibaf:v:32:y:2014:i:c:p:15-26
    DOI: 10.1016/j.ribaf.2014.01.001
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    References listed on IDEAS

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    1. repec:ipg:wpaper:2014-459 is not listed on IDEAS
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    3. repec:ipg:wpaper:2014-555 is not listed on IDEAS
    4. Morad, Shahidah Nailul & Masih, Mansur, 2015. "Islamic REIT response to macroeconomic factors: a markov regime switching auto regressive approach," MPRA Paper 65237, University Library of Munich, Germany.

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