The Importance of Real and Nominal Shocks on the UK Housing Market

SWP 2011/05

29 Pages Posted: 7 May 2012

See all articles by Paresh Kumar Narayan

Paresh Kumar Narayan

Deakin University - School of Accounting, Economics and Finance

Seema Narayan

affiliation not provided to SSRN

Date Written: 2011

Abstract

The goal of this paper is to examine the responsiveness of the UK housing market to real and nominal shocks. To achieve this goal, we use a structural VAR model, based on quarterly data for the period 1957:1-2009:4. We find that in response to an interest rate shock, house prices (aggregate house price and modern house price) fall sharply over the first 4 years and do not recover to their pre-shock level. In response to a real GDP shock, both house prices react in a positive inverted U-shaped manner. Finally, we find that an inflation shock has a U-shaped negative impact on aggregate and modern house prices in the UK.

Suggested Citation

Narayan, Paresh Kumar and Narayan, Seema, The Importance of Real and Nominal Shocks on the UK Housing Market (2011). SWP 2011/05, Available at SSRN: https://ssrn.com/abstract=2052122 or http://dx.doi.org/10.2139/ssrn.2052122

Paresh Kumar Narayan (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Seema Narayan

affiliation not provided to SSRN ( email )

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