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The changing role of house price dynamics over the business cycle

  • Dufrénot, G.
  • Malik, S.

In this paper, we attempt to analyse the relationship between house price developments and the business cycle. Employing a time-varying transition probability Markov switching framework, we provide empirical evidence that house price growth may prove a useful leading indicator for turning point detection. In focusing on three countries, the US, UK and Spain, we furthermore provide evidence that although potentially informative from an overall perspective in business cycle modelling, the signi.cance of signals contained in house prices may not be symmetric across the identi.ed high growth and low growth states. In addition, we suggest a possible range of values for house price de.ation which may trigger a recession the following period.

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Paper provided by Banque de France in its series Working papers with number 309.

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Length: 22 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:bfr:banfra:309
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Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS

Web page: http://www.banque-france.fr/

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  14. Patrick Honohan, 2008. "Discussion of 'Financial innovation and European housing and mortgage markets', by David Miles and Vladimir Pillonca," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 176-179, spring.
  15. Edward E. Leamer, 2007. "Housing IS the Business Cycle," NBER Working Papers 13428, National Bureau of Economic Research, Inc.
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  19. Hans-Martin Krolzig & Michael Clements, 2000. "Business Cycle Asymmetries: Characterisation and Testing based on Markov-Switching Autoregressions," Economics Series Working Papers 2000-W32, University of Oxford, Department of Economics.
  20. Nils Jannsen, 2009. "National and International Business Cycle Effects of Housing Crises," Kiel Working Papers 1510, Kiel Institute for the World Economy.
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  28. Nicholas M. Kiefer, 1980. "A Note on Regime Classification in Disequilibrium Models," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 637-639.
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  30. Carlos Vargas-Silva, 2007. "Monetary policy and the U.S. housing market: A VAR analysis imposing sign restrictions," Working Papers 0705, Sam Houston State University, Department of Economics and International Business.
  31. Helmut Wagner, 2010. "The causes of the recent financial crisis and the role of central banks in avoiding the next one," International Economics and Economic Policy, Springer, vol. 7(1), pages 63-82, May.
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