The Changing Role of House Price Dynamics Over the Business Cycle

22 Pages Posted: 26 Dec 2010

See all articles by Gilles Dufrénot

Gilles Dufrénot

GREQAM and Aix-Marseille School of Economics

Sheheryar Malik

Banque de France

Date Written: December 1, 2010

Abstract

In this paper, we attempt to analyse the relationship between house price developments and the business cycle. Employing a time- varying transition probability Markov switching framework, we provide empirical evidence that house price growth may prove a useful leading indicator for turning point detection. In focusing on three countries, the US, UK and Spain, we furthermore provide evidence that although potentially informative from an overall perspective in business cycle modelling, the significance of signals contained in house prices may not be symmetric across the identified high growth and low growth states. In addition, we suggest a possible range of values for house price deflation which may trigger a recession the following period.

Keywords: Business cycles, leading indicators, housing, Markov switching

JEL Classification: C11, C32, G15, R31, E32

Suggested Citation

Dufrénot, Gilles and Malik, Sheheryar, The Changing Role of House Price Dynamics Over the Business Cycle (December 1, 2010). Banque de France Working Paper No. 309, Available at SSRN: https://ssrn.com/abstract=1730104 or http://dx.doi.org/10.2139/ssrn.1730104

Gilles Dufrénot (Contact Author)

GREQAM and Aix-Marseille School of Economics ( email )

Centre de la vieille Charité
2 rue de la Charité
13002 Marseille, 13236
France

Sheheryar Malik

Banque de France ( email )

Paris
France

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