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Temporal Causality between House Prices and Output in the U.S.: A Bootstrap Rolling-Window Approach

  • Wendy Nyakabawo

    (University of Pretoria)

  • Stephen M. Miller

    (University of Nevada, Las Vegas and University of Connecticut)

  • Mehmet Balcilar

    (Eastern Mediterranean University)

  • Sonali Das

    (Council for Scientific and Industrial Research)

  • Rangan Gupta

    (University of Pretoria)

This paper examines the causal relationships between the real house price index and real GDP per capita in the U.S., using the bootstrap Granger (temporal) non-causality test and a fixed-size rolling-window estimation approach. We use quarterly time-series data on the real house price index and real GDP per capita, covering the period 1963:Q1 to 2012:Q2. The full-sample bootstrap non-Granger causality test result suggests the existence of a unidirectional causality running from the real house price index to real GDP per capita. A wide variety of tests of parameter constancy used to examine the stability of the estimated vector autoregressive (VAR) models indicate short- and long-run instability. This suggests that we cannot rely on the full-sample causality tests and, hence, this warrants a time-varying (bootstrap) rolling-window approach to examine the causal relationship between these two variables. Using a rolling window size of 28 quarters, we find that while causality from the real house price to real GDP per capita occurs frequently, significant, but less frequent, evidence of real GDP per capita causing the real house price also occurs. These results imply that while the real house price leads real GDP per capita, in general (both during expansions and recessions), significant feedbacks also exist from real GDP per capita to the real house price.

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File URL: http://web2.uconn.edu/economics/working/2013-14.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2013-14.

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Length: 31 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:uct:uconnp:2013-14
Note: Stephen M. Miller is corresponding author.
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Web page: http://www.econ.uconn.edu/

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