House prices and interest rates: Bayesian evidence from Germany

Christoph Hanck and Jan Prüser

Applied Economics, 2020, vol. 52, issue 28, 3073-3089

Abstract: This study uses a Bayesian VAR (BVAR) to demonstrate that the recent boom in German house prices can be explained by falling interest rates and that higher interest rates are likely sufficient to stop the price increase. The latter suggests a potential drawback of the current monetary policy of the ECB. The BVAR’s prior information shrinks the model parameters towards a parsimonious benchmark in order to avoid overfitting the data. We use an empirical Bayes approach to select the informativeness of the prior. To choose relevant control variables, we use a Bayesian variable selection approach. In addition to impulse responses and variance decompositions, we use a Bayesian conditional forecast to test the hypothetical effect of an interest rate increase on house prices.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2019.1705242 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:52:y:2020:i:28:p:3073-3089

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2019.1705242

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().