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Causal relationship between asset prices and output in the US: Evidence from state-level panel Granger causality test

Author

Listed:
  • Furkan Emirmahmutoglu

    (Department of Econometrics, Gazi University, Turkey)

  • Mehmet Balcilar

    (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • Nicholas Apergis

    (Department of Banking and Financial Management, University of Piraeus, Greece)

  • Beatrice D. Simo-Kengne

    (Department of Economics, University of Pretoria)

  • Tsangyao Chang

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

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

Abstract

This paper investigates the causal relationship between asset prices and per capita output across 50 US states and the District of Columbia over 1975 to 2012. A bootstrap panel Granger causality approach is applied on a trivariate VAR comprising of real house prices, real stock prices and real per capita personal income (proxying output), which allows us to account not only for heterogeneity and cross-sectional dependence, but also for interdependency between the two asset markets. Empirical results reveal the existence of a unidirectional causality running from both asset prices to output. This confirms the leading indicator property of asset prices for the real economy, while also substantiating the wealth and/or collateral transmission mechanism. Moreover, the absence of reverse causation from the personal income per capita to both housing and stock prices tend to suggest that non-economic fundamentals may have played an important role in the formation of bubbles in these markets.

Suggested Citation

  • Furkan Emirmahmutoglu & Mehmet Balcilar & Nicholas Apergis & Beatrice D. Simo-Kengne & Tsangyao Chang & Rangan Gupta, 2014. "Causal relationship between asset prices and output in the US: Evidence from state-level panel Granger causality test," Working Papers 201411, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201411
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    References listed on IDEAS

    as
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    Cited by:

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    4. Vasilios Plakandaras & Rangan Gupta & Constantinos Katrakilidis & Mark E. Wohar, 2020. "Time-varying role of macroeconomic shocks on house prices in the US and UK: evidence from over 150 years of data," Empirical Economics, Springer, vol. 58(5), pages 2249-2285, May.
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    6. Rangan Gupta & Zhihui Lv & Wing-Keung Wong, 2019. "Macroeconomic Shocks and Changing Dynamics of the U.S. REITs Sector," Sustainability, MDPI, vol. 11(10), pages 1-12, May.
    7. Aviral Kumar Tiwari & Rangan Gupta & Juncal Cunado & Xin Sheng, 2020. "Testing the white noise hypothesis in high-frequency housing returns of the United States," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 178-188.
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    11. Petre Caraiani & Rangan Gupta & Chi Keung Marco Lau & Hardik A. Marfatia, 2022. "Effects of Conventional and Unconventional Monetary Policy Shocks on Housing Prices in the United States: The Role of Sentiment," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 23(3), pages 241-261, July.
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    13. Fang, Zheng & Chang, Youngho, 2016. "Energy, human capital and economic growth in Asia Pacific countries — Evidence from a panel cointegration and causality analysis," Energy Economics, Elsevier, vol. 56(C), pages 177-184.
    14. Gupta, Rangan & Sheng, Xin & van Eyden, Reneé & Wohar, Mark E., 2021. "The impact of disaggregated oil shocks on state-level real housing returns of the United States: The role of oil dependence," Finance Research Letters, Elsevier, vol. 43(C).
    15. Chi-Wei SU & Zong-Liang YAO & Hsu-Ling CHANG, 2016. "The relationship between output and asset prices: A time – and frequency – varying approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(606), S), pages 57-76, Spring.
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    More about this item

    Keywords

    House prices; stock prices; output; granger causality;
    All these keywords.

    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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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