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Do House Prices Hedge Inflation in the US? A Quantile Cointegration Approach

Author

Listed:
  • Christina Christou

    () (School of Economics and Management, Open University of Cyprus, Cyprus)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria, South Africa)

  • Wendy Nyakabawo

    () (Department of Economics, University of Pretoria, South Africa)

  • Mark E. Wohar

    () (College of Business Administration, University of Nebraska at Omaha, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)

Abstract

This study analyses the long-run relationship between U.S house prices and non-housing Consumer Price Index (CPI) over the monthly period 1953 to 2016 using a quantile cointegration analysis. Our findings show evidence of instability in standard cointegration models, suggesting possibility of structural breaks and nonlinearity in the relationship between house prices and non-housing CPI. This motivates the use of a time-varying approach, namely, a quantile cointegration analysis, which allows the cointegrating coefficient to vary over the conditional distribution of house prices and simultaneously test for the existence of cointegration at each quantile. Our results suggest that the U.S non-housing CPI and house price index series are cointegrated at lower quantiles only, with house prices over-hedging inflation at these quantiles.

Suggested Citation

  • Christina Christou & Rangan Gupta & Wendy Nyakabawo & Mark E. Wohar, 2017. "Do House Prices Hedge Inflation in the US? A Quantile Cointegration Approach," Working Papers 201707, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201707
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    More about this item

    Keywords

    house prices; inflation; hedging; quantile cointegration;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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