Do house price developments spillover across euro area countries? Evidence from a global VAR

Isabel Vansteenkiste () and Paul Hiebert

Journal of Housing Economics, 2011, vol. 20, issue 4, 299-314

Abstract: This paper empirically assesses the prospects for house price spillovers in the euro area, where co-movement in house prices across countries may be particularly relevant given a general trend with monetary union toward increasing linkages in trade, financial markets, and general economic conditions. A global VAR is estimated for three housing demand variables (real house prices, real per capita income, and the cost of borrowing, captured by a real long-term interest rate) on the basis of quarterly data for 7 euro area countries (Belgium, Germany, Ireland, Spain, France, Italy and the Netherlands), which together comprise nearly 90% of euro area GDP, over the period 1971–2009. The results suggest limited house price spillovers in the euro area, albeit with evidence of some overshooting in the first year after the shock, followed by a long run aggregate euro area impact of country-specific changes in real house prices related in part to the country’s economic weight. This contrasts with the impacts of a shock to domestic long-term interest rates, causing a permanent shift in house prices after 2–3 years. Underlying this aggregate development are rather heterogeneous house price spillovers at the country level, with a strong importance for weights – either economic or geographic – in governing their general magnitude. More generally, the impact of financing costs on house prices appears to have grown though time.

Keywords: House price; Global VAR (GVAR); International linkages (search for similar items in EconPapers)
JEL-codes: C32 R21 R31 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (65)

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Working Paper: Do house price developments spill over across euro area countries? Evidence from a Global VAR (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:20:y:2011:i:4:p:299-314

DOI: 10.1016/j.jhe.2011.08.003

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