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House Prices and Housing Investment in Sweden and the UK. Econometric analysis for the period 1970-1998

Author

Listed:
  • Bharat Barot

    (National Institute of Economic Research, Sweden)

  • Zan Yang

    (Institute for Housing & Urban Research, Sweden)

Abstract

We estimate quarterly dynamic housing demand and investment supply models for Sweden and UK for the sample period 1970-1998 using an Error Correction Method (ECM). This method requires as a preliminary step that we test for the order of integration and cointegration. The ECM models seem appropriate as the dynamics of both short-run (changes) and (long- run levels) adjustment processes are modelled. To facilitate comparisons of results between Sweden and UK we model both countries identically with approximately almost the same exogenous variables. The results indicate that the volatility in house prices and housing investment can be sought in the fundamentals representing the demand and supply sides in accordance with theoretical conceptions and experience of how the housing market works. The long run income elasticities for Sweden and UK are constrained to be 1.0 and 1.0 respectively. The long runs semi- elasticity for interest rates are 2.1 and 0.9 for Sweden and UK. The speed of adjustment on the demand side is 0.12 and 0.23 and on the supply side is 0.06 and 0.48 for Sweden respectively UK. Granger causality tests indicate that income Granger causes prices for Sweden, while for UK there is also a feedback from house prices to income. Prices Granger cause financial wealth for Sweden, while for UK it's vice versa. House prices cause household debt for Sweden, while for UK there is a feedback from debt. Interest rates Granger cause house prices for UK and Sweden. In both countries Tobin’s q Granger cause housing investment. Generally the diagnostic tests indicate that the model specifications were satisfactory to the unknown data generating process. Keywords: House prices, Housing investment, Tobins' q, Error Correction, Cointegration, long run and elasticities, forecasting ability.

Suggested Citation

  • Bharat Barot & Zan Yang, 2004. "House Prices and Housing Investment in Sweden and the UK. Econometric analysis for the period 1970-1998," Macroeconomics 0409022, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0409022
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    References listed on IDEAS

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    Cited by:

    1. P. Arestis & A.R. Gonz�lez, 2014. "Modelling the housing market in OECD countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(2), pages 131-153, March.
    2. Ms. Rima A Turk, 2015. "Housing Price and Household Debt Interactions in Sweden," IMF Working Papers 2015/276, International Monetary Fund.
    3. Ene Kolbre & Angelika Kallakmaa-Kapsta & Taavi Ojala, 2009. "Estonian Housing Market: Searching for Origins of the Boom," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 1(2).
    4. Rehman, Saira & Moutinho, Nuno & Alves, Jorge, 2020. "The Relationship Between Portuguese Economy Indicators And Housing Prices," Journal of Tourism, Sustainability and Well-being, Cinturs - Research Centre for Tourism, Sustainability and Well-being, University of Algarve, vol. 8(4), pages 270-286.

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    More about this item

    Keywords

    House prices; Housing investment; Tobins' q; Error Correction; Cointegration; long run and elasticities; forecasting ability.;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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