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

Posted: 20 Jan 2017

See all articles by N. Kundan Kishor

N. Kundan Kishor

Texas Tech University

Hardik Marfatia

Northeastern Illinois University - Economics

Date Written: January 18, 2017

Abstract

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.

Keywords: Global housing market; Trend-cycle decomposition; Cointegration

JEL Classification: E32, E43, E52, G15, R31

Suggested Citation

Kishor, N. Kundan and Marfatia, Hardik, The Dynamic Relationship between Housing Prices and the Macroeconomy: Evidence from OECD Countries (January 18, 2017). Journal of Real Estate Finance and Economics, Vol. 54, No. 2, 2017. Available at SSRN: https://ssrn.com/abstract=2901495

N. Kundan Kishor (Contact Author)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Hardik Marfatia

Northeastern Illinois University - Economics ( email )

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

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