Housing market volatility in the OECD area: Evidence from VAR based return decompositions

Tom Engsted and Thomas Pedersen ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Vector-autoregressive models are used to decompose housing returns in 18 OECD countries into cash ?ow (rent) news and discount rate (return) news. Only for two countries - Germany and Ireland - do changing expectations of future rents play a dominating role in explaining housing return volatility. For the majority of countries news about future returns is the main driver, and both real interest rates and risk premia play an important role in accounting for housing market volatility. Bivariate cross-country correlations and principal components analyses indicate that part of the return movements have a common factor among the majority of countries. However, in a minority of countries (Germany, Japan, and the Netherlands) return movements have been basically unrelated to return movements in other countries.

Keywords: Housing return volatility; variance decomposition; dynamic Gordon growth model; innovation and news components; VAR model; principal components; OECD countries (search for similar items in EconPapers)
JEL-codes: C32 G12 R31 (search for similar items in EconPapers)
Pages: 26
Date: 2013
New Economics Papers: this item is included in nep-eec and nep-ure
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Citations: View citations in EconPapers (1)

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Journal Article: Housing market volatility in the OECD area: Evidence from VAR based return decompositions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2013-04

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