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Macroeconomic Shocks and Changing Dynamics of the U.S. REITs Sector

Rangan Gupta (), Zhihui Lv () and Wing-Keung Wong ()
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Zhihui Lv: KLASMOE & School of Mathematics and Statistics, Northeast Normal University, Changchun 130024, China

Sustainability, 2019, vol. 11, issue 10, 1-12

Abstract: Unlike the existing literature, which primarily studies the impact of only monetary policy shocks on real estate investment trusts (REITs), this paper develops a change-point vector autoregressive (VAR) model and then analyzes, for the first time, regime-specific impact of demand, supply, monetary policy, and spread yield shocks, identified using sign-restrictions, on US REITs returns. The model first isolates four major macroeconomic regimes in the US since the 1970s and discloses important changes to the statistical properties of REITs returns and its responses to the identified shocks. A variance decomposition analysis revealed aggregate supply shocks to have dominated in the early part of the sample period, and monetary policy and spread shocks at the end. Our results imply that ignoring other possible shocks in the model is likely to lead to incorrect inferences, and over-reliance on (conventional) monetary policy in correcting for possible bubbles in the REITs sector, which it will fail to rectify, given the importance of other shocks driving the REITs sector.

Keywords: change-point VAR model; macroeconomic shocks; US REITs sector (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Macroeconomic Shocks and Changing Dynamics of the U.S. REITs Sector (2018)
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