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News and noise in the housing market

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  • Gazzani, Andrea

Abstract

Housing prices are subject to boom and bust episodes with long-lasting deviation from fundamentals. By considering a present value housing price model under noisy information, I study the macroeconomic implications of movements in housing prices related (news) and not related (noise) to future fundamentals. I provide empirical evidence of the sizable macroeconomic effects of news and noise shocks. Following Forni et al. (2014, 2016), I identify news and noise shocks through a non-standard VAR technique which exploits future information. In the US, news shocks are the main driver of the housing market at low frequencies, but in the short-medium horizon noise shocks explain a large share of the variability in housing prices, residential investment and GDP. Historically, many housing cycles are driven by noise. The empirical findings are consistent with a model JEL Classification: E30, E40, E50

Suggested Citation

  • Gazzani, Andrea, 2016. "News and noise in the housing market," Working Paper Series 1933, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20161933
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    References listed on IDEAS

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    More about this item

    Keywords

    housing market; macro-prudential; noise; non-fundamental VAR; property tax;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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