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Cross-Country Evidence On The Causal Relationship Between Policy Uncertainty And House Prices


  • Ghassen El Montasser

    () (École Supérieure de Commerce de Tunis, Université de la Manouba)

  • Ahdi N. Ajmi

    () (College of Science and Humanities in Slayel, Salman bin Abdulaziz University, Kingdom of Saudi Arabia)

  • Tsangyao Chang

    () (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Beatrice D. Simo-Kengne

    () (Department of Economics, University of Pretoria)

  • Christophe Andre

    () (Economics Department, Organisation for Economic Co-operation and Development (OECD))

  • Rangan Gupta

    () (Department of Economics, University of Pretoria)


This paper empirically examines the causal linkages between policy uncertainty and house prices in a panel of seven advanced countries including Canada, France, Germany, Italy, Spain, the UK and the US. We implement a bootstrap panel causality test on quarterly data from 2001Q1 to 2013Q1, which allows us to circumvent the data limitation as observations are pooled across countries. Empirical results provide evidence of a bi-directional causality between real house prices and policy uncertainty, suggesting that high uncertainty related to future economic fundamentals and policies increases house price volatility, which in turn may amplify financial and business cycles. This finding is consistent with individual results for France and Spain, while contrasting with the unidirectional causality reported in the remaining countries. Particularly, support for a unidirectional causality running from policy uncertainty to real house prices is found in Canada, Germany and Italy, while a unidirectional causality running from real house prices to policy uncertainty prevails in the UK and the US.

Suggested Citation

  • Ghassen El Montasser & Ahdi N. Ajmi & Tsangyao Chang & Beatrice D. Simo-Kengne & Christophe Andre & Rangan Gupta, 2013. "Cross-Country Evidence On The Causal Relationship Between Policy Uncertainty And House Prices," Working Papers 201380, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201380

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    References listed on IDEAS

    1. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
    2. Hideaki Hirata & M. Ayhan Kose & Christopher Otrok & Marco E Terrones, 2013. "Global House Price Fluctuations: Synchronization and Determinants," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 119-166.
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    5. John Muellbauer & Anthony Murphy, 2008. "Housing markets and the economy: the assessment," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 1-33, spring.
    6. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, vol. 142(1), pages 50-93, January.
    7. Granger, Clive W. J., 2003. "Some aspects of causal relationships," Journal of Econometrics, Elsevier, vol. 112(1), pages 69-71, January.
    8. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
    9. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    10. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    11. Emirmahmutoglu, Furkan & Kose, Nezir, 2011. "Testing for Granger causality in heterogeneous mixed panels," Economic Modelling, Elsevier, vol. 28(3), pages 870-876, May.
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    Cited by:

    1. Goodness C. Aye & Matthew W. Clance & Rangan Gupta, 2017. "The Effect of Economic Uncertainty on the Housing Market Cycle," Working Papers 201757, University of Pretoria, Department of Economics.
    2. Sheung-Chi Chow & Juncal Cunado & Rangan Gupta & Wing-Keung Wong, 2016. "Causal Relationships between Economic Policy Uncertainty and Housing Market Returns in China and India: Evidence from Linear and Nonlinear Panel and Time Series Models," Working Papers 201674, University of Pretoria, Department of Economics.

    More about this item


    House prices; Uncertainty; Cross-section Dependence and Heterogeneity; Panel Causality Test;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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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