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The Importance of Real and Nominal Shocks on the UK Housing Market

  • Seema Narayan

    (Senior Lecturer in Economics, RMIT University, Australia)

  • Paresh Kumar Narayan

    (Faculty of Business and Law, Deakin University, Australia)

The goal of this paper is to examine the responsiveness of the UK housing market to real and nominal shocks. To achieve this goal, we use a structural VAR model based on quarterly data for the period 1957:1¡V2009:4. We find that, in response to an interest rate shock, aggregate and modern house prices fall sharply over the first 4 years and do not recover to their pre-shock level. In response to a real GDP shock, both house prices react in a positive inverted U-shaped manner. Finally, we find that an inflation shock has a U-shaped negative impact on aggregate and modern house prices in the UK.

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Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 10 (2011)
Issue (Month): 3 (December)
Pages: 219-234

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Handle: RePEc:ijb:journl:v:10:y:2011:i:3:p:219-234
Contact details of provider: Postal: 100 Wenhwa Road, Seatwen, Taichung
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  1. Kau, James B. & Keenan, Donald, 1981. "On the theory of interest rates, consumer durables, and the demand for housing," Journal of Urban Economics, Elsevier, vol. 10(2), pages 183-200, September.
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  15. Lastrapes, W.D., 2000. "The Real Price of Housing and Money Supply Shocks: Time Series Evidence and Theoretical Simulations," Papers 00-479, Georgia - College of Business Administration, Department of Economics.
  16. S. Cook & C. Thomas, 2003. "An alternative approach to examining the ripple effect in UK house prices," Applied Economics Letters, Taylor & Francis Journals, vol. 10(13), pages 849-851.
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