How Effective are Policy Interventions in a Spatially-embedded International Real Estate Market?

Journal of Real Estate Finance and Economics, 2019

Posted: 2 Jul 2019

See all articles by Kun Duan

Kun Duan

University of Southampton - Southampton Business School

Tapas Mishra

Southampton Business School, University of Southampton

Mamata Parhi

University of Roehampton

Simon Wolfe

University of Southampton - School of Management; University of Southampton - Southampton Business School

Date Written: July 1, 2019

Abstract

We introduce the role of 'space' in analysing the effect of macroeconomic policy interventions on cross-country housing price movements. We build an empirically testable analytical model and test our theoretical predictions for a panel of European countries over the period 1985-2015. Our aim is to demonstrate that while macroeconomic policy exerts a significant impact on international housing markets, the magnitude of such impacts may be overestimated in the absence of spatial frictions. To test our hypotheses, we employ a spatial dynamic panel method and quantify intra- and inter-country differences of the effects of macroeconomic policy interventions on spatially interdependent housing markets. Endogeneity issues arise in our estimation, which we ameliorate by employing the spatial Durbin model for panel data. Following this approach, we include spatial, temporal and spatio-temporal lags for identification purposes. We show that a spatially-embedded model produces relatively smaller and correct signs for macroeconomic variables in contrast to the traditional non-spatial model. It is concluded that empirical estimates from the traditional model are consistently over-estimated. These have significant policy implications for the exact role of macroeconomic interventions in housing price movements. A battery of robustness tests and evaluations of predictive performance confirm our results.

Keywords: Housing price variations; Macroeconomic adjustments; Spatial frictions; Real estate market; Spatial dynamic panel regression; Estimation bias

JEL Classification: C33; E32; E60; E62;R03; R31

Suggested Citation

Duan, Kun and Mishra, Tapas and Parhi, Mamata and Wolfe, Simon, How Effective are Policy Interventions in a Spatially-embedded International Real Estate Market? (July 1, 2019). Journal of Real Estate Finance and Economics, 2019. Available at SSRN: https://ssrn.com/abstract=3413136

Kun Duan (Contact Author)

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Tapas Mishra

Southampton Business School, University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Mamata Parhi

University of Roehampton ( email )

Roehampton Lane
London, SW15 5PU
United Kingdom

Simon Wolfe

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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