US Disposable Personal Income and Housing Price Index: A Fractional Integration Analysis

25 Pages Posted: 20 Oct 2010

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Date Written: October 19, 2010

Abstract

This paper examines the relationship between US disposable personal income (DPI) and house price index (HPI) during the last twenty years applying fractional integration and long-range dependence techniques to monthly data from January 1991 to July 2010. The empirical findings indicate that the stochastic properties of the two series are such that cointegration cannot hold between them, as mean reversion occurs in the case of DPI but not of HPI. Also, recursive analysis shows that the estimated fractional parameter is relatively stable over time for DPI whilst it increases throughout the sample for HPI. Interestingly, the estimates tend to converge toward the unit root case after 2008 once the bubble had burst. The implications for explaining the recent financial crisis and choosing appropriate policy actions are discussed.

Keywords: personal disposable income, house price index, fractional integration

JEL Classification: C22, E30

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A., US Disposable Personal Income and Housing Price Index: A Fractional Integration Analysis (October 19, 2010). CESifo Working Paper Series No. 3208, Available at SSRN: https://ssrn.com/abstract=1694434

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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