Estimating U.S. Housing Price Network Connectedness: Evidence from Dynamic Elastic Net, Lasso, and Ridge Vector Autoregressive Models

27 Pages Posted: 4 Sep 2020

See all articles by David Gabauer

David Gabauer

affiliation not provided to SSRN

Rangan Gupta

University of Pretoria - Department of Economics

Hardik Marfatia

Northeastern Illinois University - Economics

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: July 26, 2020

Abstract

This paper investigates the dynamic connectedness of random shocks to housing prices between the 50 U.S. states and the District of Columbia. The paper implements a standard vector autoregressive (VAR) model as well as three VAR models with shrinkage effects - Elastic Net, Lasso, and Ridge VAR models. The transmission of random shocks on a regional basis flows from Southern states to Western states to Midwestern states to Northeastern states. Since VAR models generally confront parameter values between zero and one, the Elastic Net and Lasso VAR models perform the best since the penalty involves the absolute value rather than he squared value as in the Ridge VAR model. Our results have important implications for investors and policymakers.

Keywords: Dynamic Connectedness, Elastic Net VAR, Lasso VAR, Ridge VAR, U.S. Housing

JEL Classification: C32, C52, R31

Suggested Citation

Gabauer, David and Gupta, Rangan and Marfatia, Hardik and Miller, Stephen M., Estimating U.S. Housing Price Network Connectedness: Evidence from Dynamic Elastic Net, Lasso, and Ridge Vector Autoregressive Models (July 26, 2020). Available at SSRN: https://ssrn.com/abstract=3660950 or http://dx.doi.org/10.2139/ssrn.3660950

David Gabauer

affiliation not provided to SSRN

Rangan Gupta

University of Pretoria - Department of Economics ( email )

South Africa

Hardik Marfatia

Northeastern Illinois University - Economics ( email )

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

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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