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Causal Relationships between Economic Policy Uncertainty and Housing Market Returns in China and India: Evidence from Linear and Nonlinear Panel and Time Series Models

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  • Sheung-Chi Chow

    (Research Institute of Business, Hang Seng Management College)

  • Juncal Cunado

    (Facultad de Ciencias Economicas y Empresariales, Universidad de Navarra)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Wing-Keung Wong

    (Department of Finance, Asia University and Department of Economics, Lingnan University)

Abstract

In this paper, we modify the multivariate nonlinear causality test to be panel nonlinear causality test and we recommend academics and practitioners to carry out cross linear and nonlinear causality tests in their study.Thereafter, we apply the tests we proposed and other existing related tests to examine the causal relationship between Economic Policy Uncertainty (EPU) and real housing returns in China and India using monthly data from January 1998 to December 2014. While both panellinear and nonlinear Granger causality tests suggest the existence of only linear and nonlinear unidirectional causality relationships from EPU shocks to real housing returns in both China and India, and bivariate linear Granger causality test suggest the existence of only linear unidirectional causality relationship from EPU shocks to real housing returns only in China, nonlinear bivariate Granger causality test conclude that the existence of nonlinear bidirectional causality relationships between EPU shocks and real housing returns in both China and India and cross bivariate linear and nonlinear Granger causality tests discover that there is only a linear causality relationship from Indian EPU shocks to Chinese housing returns. The results confirm the relevance of EPU data to better understand and predict the future behaviour of housing market returns in these countries.

Suggested Citation

  • 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.
  • Handle: RePEc:pre:wpaper:201674
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    More about this item

    Keywords

    Economic policy uncertainty; Housing market returns; Granger causality linear and nonlinear tests;

    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)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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