The Effects and Origins of House Price Uncertainty Shocks

58 Pages Posted: 2 Mar 2020

See all articles by Sanha Noh

Sanha Noh

Jeonbuk National University

Date Written: February 2, 2020


This paper investigates the effects of house price uncertainty shocks on economic activity, and traces the origins of the shocks. A Markov-switching vector autoregression (MS-VAR) model shows that house price uncertainty shocks in expansionary regimes increase residential investment, housing prices, and mortgage debt, while they have the opposite effects in recessionary regimes. These empirical results are investigated in an estimated New-Keynesian dynamic stochastic general equilibrium (DSGE) model with a housing sector that allows for multiple structural uncertainty shocks. We show that uncertainty shocks to housing preference and the inflation target are the main sources of house price uncertainty shocks. Uncertainty shocks to investment-specific technology and the inflation target can reproduce the empirical impulse responses in recessionary regimes from the MS-VAR. By contrast, the responses to housing preference uncertainty shocks are consistent with the empirical impulse responses in expansionary regimes. House price uncertainty generated by these structural uncertainty shocks affects the housing market via both housing demand and real-options channels.

Keywords: House price uncertainty shocks, DSGE, Nonlinear estimation, Housing demand channel, Real-options channel

JEL Classification: E32, E44, E52, R21, R31

Suggested Citation

Noh, Sanha, The Effects and Origins of House Price Uncertainty Shocks (February 2, 2020). Available at SSRN: or

Sanha Noh (Contact Author)

Jeonbuk National University ( email )

567 Baekje-daero, Geumam 1(il)-dong
Korea, Republic of (South Korea)

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