Macroeconomic Stability, Equities and Real Estate: A Dynamic Model for the U.K

W. David McCausland and Ian D. McAvinchey
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W. David McCausland: University of Aberdeen
Ian D. McAvinchey: University of Aberdeen

Ekonomia, 2009, vol. 12, issue 2, 127-159

Abstract: The role of equities, house prices, and goverment bonds are investigated in a three-equation dynamic macroeconomic model of the United Kingdom economy. A theoretical structure is given and the derived econometric model is estimated using quarterly data 1964(4)-2005(1). The equity crash of 1999-2000 is used as a way of analysing the dynamic interactions of the system. These show strong evidence of substitution between housing and equities as a means of holding wealth, while the volatility in equities and house prices tends to mitigate the expected volatility in income. The supply of goverment bonds and monetary policy are seen to be stabilising in the post shock environment.

JEL-codes: E00 E22 E30 E37 R31 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ekn:ekonom:v:12:y:2009:i:2:p:127-159

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