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Macroeconomic Stability, Equities and Real Estate: A Dynamic Model for the U.K


  • W. David McCausland

    (University of Aberdeen)

  • Ian D. McAvinchey

    (University of Aberdeen)


The role of equities, house prices, and goverment bonds are investigated in a three-equation dynamic macroeconomic model of the United Kingdom economy. A theoretical structure is given and the derived econometric model is estimated using quarterly data 1964(4)-2005(1). The equity crash of 1999-2000 is used as a way of analysing the dynamic interactions of the system. These show strong evidence of substitution between housing and equities as a means of holding wealth, while the volatility in equities and house prices tends to mitigate the expected volatility in income. The supply of goverment bonds and monetary policy are seen to be stabilising in the post shock environment.

Suggested Citation

  • W. David McCausland & Ian D. McAvinchey, 2009. "Macroeconomic Stability, Equities and Real Estate: A Dynamic Model for the U.K," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 127-159, Winter.
  • Handle: RePEc:ekn:ekonom:v:12:y:2009:i:2:p:127-159

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    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets


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