The role of economic policy uncertainty in forecasting housing prices volatility in developed economies: evidence from a GARCH-MIDAS approach

Ting Fan, Asadullah Khaskheli, Syed Raza and Nida Shah

International Journal of Housing Markets and Analysis, 2022, vol. 16, issue 4, 776-791

Abstract: Purpose - In the past few years, numerous economic uncertainty challenges have occurred globally. These uncertainties grasp the attention of the researchers and they examine the role of economic policy uncertainties in several aspects. Therefore, this study contributes to the literature by exploring the house prices volatility and economic policy uncertainty nexus in G7 countries. Design/methodology/approach - The authors applied the newly introduced econometric technique, the GARCH-MIDAS model, to the sample size of January 1998–May 2021. Findings - The result shows a significant relationship between house prices volatility and economic policy uncertainty. Moreover, economic policy uncertainty acts as a significant determinant of house prices volatility. In addition, the out-of-sample also shows that the economic policy uncertainty is an effective predictor and the GARCH-MIDAS has a better predictive ability. Originality/value - This paper makes a unique contribution to the literature with reference to developed economies, being a pioneering attempt to investigate the GARCH-MIDAS model to analyze the relationship between housing prices volatility and economic policy uncertainty by applying more rigorous and advanced econometric techniques.

Keywords: Economic policy uncertainty; House prices volatility; G7 countries; GARCH-MIDAS model; Forecasting; Developed economies (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:ijhma-03-2022-0040

DOI: 10.1108/IJHMA-03-2022-0040

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