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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
Do House Prices Impact Consumption and Interest Rate?
Evidence from OECD Countries Using an Agnostic Identification Procedure
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- Christophe André1, Rangan Gupta2, Patrick T. Kanda2
- Author Affiliations
- 1: OECD, France
- 2: University of Pretoria, South Africa
- 09 Mar 2012
- Bibliographic information
This paper investigates the existence of significant spillovers from the housing sector onto the wider economy for the seven major OECD countries using Uhlig's (2005) agnostic identification procedure. This method allows a housing demand shock to be identified in a six-variable VAR model by imposing sign restrictions on the impulse responses of consumer prices, residential investment, real house prices and mortgage loans, while private consumption and nominal interest rate responses are left unrestricted. The results suggest that consumption responds positively and significantly to a house price shock in Canada, France, Japan and the UK. A significant positive delayed response of nominal interest rates follows a house price shock in Germany, Japan, the UK and the US, suggesting that while central banks do not seem to respond instantly and systematically to a housing demand shock, their repercussions on the economy tend to translate into higher policy rates after a few quarters.
- monetary policy, agnostic identification, consumption, house prices
- JEL Classification:
- C32: Mathematical and Quantitative Methods / Multiple or Simultaneous Equation Models; Multiple Variables / Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- E31: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Price Level; Inflation; Deflation
- E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles
- E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy
- E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy