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Time-Varying Role of Macroeconomic Shocks on House Prices in the US and UK: Evidence from Over 150 Years of Data

Author

Listed:
  • Vasilios Plakandaras

    () (Department of Economics, Democritus University of Thrace, Greece)

  • Rangan Gupta

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

  • Constantinos Katrakilidis

    () (Department of Economics, Aristotle University of Thessaloniki, Greece)

  • Mark E. Wohar

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

Abstract

In this paper, we study the effect of macroeconomic shocks in the determination of house prices. Focusing on the U.S. and the U.K. housing market, we employ time-varying Vector Autoregression models using Bayesian methods covering the periods of 1830-2016 and 1845-2016 respectively. We consider real house prices, output growth, short-term interest rates and inflation as input variables in order to unveil the effect of macroeconomic shocks on house prices. From the examination of the impulse responses of house prices on macroeconomic shocks, we find that technology shocks dominate in the U.S. real estate market, while their effect is unimportant in the U.K. In contrast, monetary policy drives most of the evolution of the U.K. house prices, while transitory house supply shocks are unimportant in either country. These findings are further corroborated with the analysis of conditional volatilities and correlations to macroeconomic shocks. Overall, we are able to better understand the dynamic linkages in the relationship of the macro economy and house prices. Over time, we analyze the variations in economic events happening at the imposition of the shock and uncover characteristics missed in the time-invariant approaches of previous studies.

Suggested Citation

  • Vasilios Plakandaras & Rangan Gupta & Constantinos Katrakilidis & Mark E. Wohar, 2017. "Time-Varying Role of Macroeconomic Shocks on House Prices in the US and UK: Evidence from Over 150 Years of Data," Working Papers 201765, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201765
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    References listed on IDEAS

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    Cited by:

    1. Wendy Nyakabawo & Rangan Gupta & Hardik A. Marfatia, 2018. "High-Frequency Impact of Monetary Policy and Macroeconomic Surprises on US MSAs and Aggregate US Housing Returns and Volatility: A GJR-GARCH Approach," Working Papers 201817, University of Pretoria, Department of Economics.
    2. Mark J. Holmes & Jesús Otero & Theodore Panagiotidis, 2018. "Property Heterogeneity and Convergence Club Formation among Local House Prices," Working Paper series 18-35, Rimini Centre for Economic Analysis.

    More about this item

    Keywords

    time-varying VAR; house prices; macroeconomic shocks;

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

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