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

This paper studies the dynamic relationship among house prices, income and interest rates 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 er...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2017-02, Vol.54 (2), p.237-268
Main Authors: Kishor, N. Kundan, Marfatia, Hardik A.
Format: Article
Language:English
Subjects:
Decomposition
Econometrics
Economic crisis
Economic models
Economic statistics
Economic theory
Economics
Economics and Finance
Error correction & detection
Family income
Financial Services
Global economy
Housing
Housing prices
Interest rates
International
Literature reviews
Macroeconomics
Organization for Economic Cooperation & Development
Real estate
Real income
Regional/Spatial Science
Studies
Transition economies
Volatility
World economy
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Summary:This paper studies the dynamic relationship among house prices, income and interest rates 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.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-015-9546-8