Housing and Economic Policy Uncertainty in the OECD Countries
25 Pages Posted: 26 Oct 2020
Date Written: September 5, 2020
Abstract
This study is aimed at examining the dynamic relationships between housing prices return and economic policy uncertainty (EPU) using a panel vector auto-regression (PVAR) approach and annual data for a panel of 16 OECD countries over the period 2004-2018. The study includes economic growth, short-term interest rate, and population as additional covariates. Empirical results show that a positive shock to EPU leads to decrease in housing prices while the EPU shows only a weak response to housing price shocks. The results imply that EPU has robust predictive power for the housing market, implying the need for evaluating the associated risks. The panel Granger causality tests indicate strong and robust Granger causality from the EPU to housing prices, but not vice versa. The causal links also indicate that the effect of the EPU on is direct rather than indirect through other variables. Based on these outcomes, policy recommendations are made for real estate agents, portfolio managers, and policy makers.
Keywords: housing price, economic policy uncertainty, panel vector auto-regression
JEL Classification: R31, C33
Suggested Citation: Suggested Citation