The Dynamic Relationship between Housing Prices and the Macroeconomy: Evidence from OECD Countries

29 Pages Posted: 19 Dec 2014

See all articles by N. Kundan Kishor

N. Kundan Kishor

University of Wisconsin - Milwaukee

Hardik Marfatia

Northeastern Illinois University - Economics

Date Written: December 17, 2014

Abstract

This paper studies the dynamic relationship among house prices, income and interest rate in 15 OECD countries. We find that any disequilibrium in the long-run cointegrating relationship among these variables is corrected by the subsequent movement in house prices in most of these countries. This error-correction property of house prices implies that most of the variations in house prices are transitory, as compared to the movements in income and interest rates that are permanent, suggesting that the short-run movements in house prices are independent of the movements in income and interest rates. The results suggest that only the permanent movement in house prices, income and interest rates are associated with each other. We also find that the correlation in house price cycles across different OECD countries has changed over time with the highest correlation during the boom period of 1998-2005.

Keywords: Global Housing Market, Trend-Cycle Decomposition, Cointegration

JEL Classification: E32, E43, E52, G15, R31

Suggested Citation

Kishor, N. Kundan and Marfatia, Hardik, The Dynamic Relationship between Housing Prices and the Macroeconomy: Evidence from OECD Countries (December 17, 2014). Available at SSRN: https://ssrn.com/abstract=2539927 or http://dx.doi.org/10.2139/ssrn.2539927

N. Kundan Kishor

University of Wisconsin - Milwaukee ( email )

Bolton Hall 802
3210 N. Maryland Ave.
Milwaukee, WI 53211
United States

Hardik Marfatia (Contact Author)

Northeastern Illinois University - Economics ( email )

5500 N. St. Louis
Chicago, IL 60625
United States

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