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Permanent and Transitory Dynamics in House Prices and Consumption: Cross-Country Evidence

  • Fabio C. Bagliano

    ()

    (Department of Economics and Public Finance "G. Prato", University of Torino)

  • Claudio Morana

    ()

    (Department of Economics and Quantitative Methods, University of Eastern Piedmont)

In this paper a small-scale macroeconomic system is estimated in the framework of a common trends model, in order to explore the dynamic interactions between real house prices, consumption expenditure and output in the US and major European economies. The results point to important differences across countries, with long-run house price effects on consumption only for France, Germany and the US. However, some interactions between house prices and consumption are detected in all countries at shorter horizons. Evidence of international comovements in the common trend component of house price dynamics is also found.

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File URL: http://web.econ.unito.it/prato/papers/n2.pdf
File Function: First version, 2008
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Paper provided by Former Department of Economics and Public Finance "G. Prato", University of Torino in its series Working papers with number 2.

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Length: 34 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:tur:wpaper:2
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  1. Paul Louis Ceriel Hilbers & Angana Banerji & Haiyan Shi & Alexander W. Hoffmaister, 2008. "House Price Developments in Europe; A Comparison," IMF Working Papers 08/211, International Monetary Fund.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  3. Andrea Finicelli, 2007. "House price developments and fundamentals in the United States," Questioni di Economia e Finanza (Occasional Papers) 7, Bank of Italy, Economic Research and International Relations Area.
  4. Robert J. Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," NBER Working Papers 13553, National Bureau of Economic Research, Inc.
  5. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-40, September.
  6. Cassola, Nuno & Morana, Claudio, 2002. "Monetary policy and the stock market in the euro area," Working Paper Series 0119, European Central Bank.
  7. Warne, A., 1993. "A Common Trends Model: Identification, Estimation and Inference," Papers 555, Stockholm - International Economic Studies.
  8. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  9. Bagliano, Fabio C. & Morana, Claudio, 2009. "International macroeconomic dynamics: A factor vector autoregressive approach," Economic Modelling, Elsevier, vol. 26(2), pages 432-444, March.
  10. Bradford Case & William Goetzmann & K. Rouwenhorst, 1999. "Global Real Estate Markets: Cycles And Fundamentals," Yale School of Management Working Papers ysm20, Yale School of Management, revised 01 Jan 2001.
  11. Mellander, Erik & Vredin, A & Warne, A, 1992. "Stochastic Trends and Economic Fluctuations in a Small Open Economy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(4), pages 369-94, Oct.-Dec..
  12. Jonathan McCarthy & Richard W. Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-17.
  13. Proietti, Tommaso, 1997. "Short-Run Dynamics in Cointegrated Systems," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(3), pages 405-22, August.
  14. Robert Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," Yale School of Management Working Papers amz2557, Yale School of Management, revised 01 Nov 2007.
  15. Martin Lettau & Sydney Ludvigson, 2003. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," NBER Working Papers 9848, National Bureau of Economic Research, Inc.
  16. Claudio Morana, 2006. "Multivariate modelling of long memory processes with common components," ICER Working Papers 40-2006, ICER - International Centre for Economic Research.
  17. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
  18. Bai, Jushan, 2004. "Estimating cross-section common stochastic trends in nonstationary panel data," Journal of Econometrics, Elsevier, vol. 122(1), pages 137-183, September.
  19. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
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