Forecasting Real-Time Economic Activity Using House Prices and Credit Conditions

33 Pages Posted: 28 May 2019

See all articles by N. Kundan Kishor

N. Kundan Kishor

University of Wisconsin - Milwaukee

Date Written: May 1, 2019

Abstract

Using real-time data from 1985:Q1-2017:Q3 and simple VAR models, we show that there is substantial pay-off in combining credit supply indicators with house prices for forecasting real economic activity in the U.S. Consistent with the findings in the literature, we show that the forecasts from a bivariate VAR model of real activity and credit conditions dominate the forecasts from univariate model of real activity. The most interesting finding of the paper is that once real house price growth is added to the bivariate VAR model of real activity and credit conditions, the forecasting performance improves significantly. The forecasts from the model that contains credit supply indicator and real house price growth are also competitive with the forecasts of the Survey of Professional Forecasters. These results provide further evidence in support of the recent theoretical and empirical research on dynamic relationship between housing market and credit conditions and its role in explaining real economic activity fluctuations in the US.

Keywords: Credit Conditions, House Prices, Real Economic Activity, Real-Time Forecasting, Forecast Combination, Least Angle Regression

JEL Classification: E31, E37

Suggested Citation

Kishor, N. Kundan, Forecasting Real-Time Economic Activity Using House Prices and Credit Conditions (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=3381221 or http://dx.doi.org/10.2139/ssrn.3381221

N. Kundan Kishor (Contact Author)

University of Wisconsin - Milwaukee ( email )

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

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