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Do House Prices Impact Consumption and Interest Rate? Evidence from OECD Countries using an Agnostic Identification Procedure

Author

Listed:
  • Christophe Andre

    (Economics Department, Organisation for Economic Co-operation and Development (OECD))

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Patrick T. Kanda

    (Department of Economics, University of Pretoria)

Abstract
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 identifying a housing demand shock 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. On the other hand, 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, the real repercussions of the latter on the economy tend to translate into higher policy rates after a few quarters.

Suggested Citation

  • Christophe Andre & Rangan Gupta & Patrick T. Kanda, 2011. "Do House Prices Impact Consumption and Interest Rate? Evidence from OECD Countries using an Agnostic Identification Procedure," Working Papers 201118, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201118
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    More about this item

    Keywords

    House Price; Monetary Policy; Consumption; Agnostic Identification;
    All these keywords.

    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

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