Real estate uncertainty and financial conditions over the business cycle

Ingul Baek, Jia Liu and Sanha Noh

International Review of Economics & Finance, 2024, vol. 89, issue PB, 656-675

Abstract: We investigate the nonlinear effects of real estate uncertainty shocks and the role of financial conditions in the U.S. over the business cycle. We employ a logistic smooth transition vector autoregressive (LSTVAR) model and identify uncertainty shocks through short-run restrictions. The results illustrate that real estate uncertainty shocks negatively affect the housing market, reducing housing prices, housing starts, and employment in the construction sector. The influence of these shocks is notably more pronounced during recessions when compared to results from a standard linear VAR model in terms of the magnitude and persistence of the responses of the housing market-related variables. Additionally, favorable financial conditions dampen the dynamic responses of both macroeconomic indicators and the housing market to real estate uncertainty.

Keywords: Financial conditions; Housing market; LSTVAR; Real estate uncertainty (search for similar items in EconPapers)
JEL-codes: C32 E32 R30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:656-675

DOI: 10.1016/j.iref.2023.10.033

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