Insight from a Time-Varying VAR Model with Stochastic Volatility of the French Housing and Credit Markets

37 Pages Posted: 14 Feb 2017

See all articles by Sanvi Avouyi-Dovi

Sanvi Avouyi-Dovi

Banque de France; ICN Business School

Claire Labonne

Autorité de Contrôle Prudentiel et de Résolution - Banque de France

Remy Lecat

Banque de France

Simon Ray

Aix-Marseille University

Date Written: January 2017

Abstract

Through a time-varying VAR model with drifting parameters and stochastic volatilities (Cogley and Sargent, 2005, Primiceri, 2005), we explore nonlinearities on the French housing and credit markets, which give rich insights on the persistent bubble of the 2000s. While the price increase took place during a period of low shock variance, shock persistence increased during this period, as well as the elasticity relative to demography and income. Low reactivity of the housing stock to housing prices may create construction bottlenecks and explain these nonlinearities. However, even though our framework is very flexible, part of the price increase remains unexplained.

Keywords: housing bubble; housing credit; housing demand; housing supply; time-varying VAR; stochastic volatility

JEL Classification: R20, G21, C32

Suggested Citation

Avouyi-Dovi, Sanvi and Labonne, Claire and Lecat, Remy and Ray, Simon, Insight from a Time-Varying VAR Model with Stochastic Volatility of the French Housing and Credit Markets (January 2017). Banque de France Working Paper No. 620, Available at SSRN: https://ssrn.com/abstract=2916614 or http://dx.doi.org/10.2139/ssrn.2916614

Sanvi Avouyi-Dovi (Contact Author)

Banque de France ( email )

Paris
France

ICN Business School ( email )

13 rue du Marechal Ney
Nancy, 54000
France

Claire Labonne

Autorité de Contrôle Prudentiel et de Résolution - Banque de France ( email )

61, rue Taitbout
Paris, 75436
France

Remy Lecat

Banque de France ( email )

Paris
France

Simon Ray

Aix-Marseille University ( email )

3 Avenue Robert Schuman
3 Avenue Robert Schuman,
Aix-en-Provence, 13628
France

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