Insight from a Time-Varying VAR Model with Stochastic Volatility of the French Housing and Credit Markets
Remy Lecat () and
Working papers from Banque de France
Through a time-varying VAR model with drifting parameters and stochastic volatilities (Cogley and Sargent, 2005, Primiceri, 2005), we explore nonlinearities on the French housing and credit markets, which give rich insights on the persistent bubble of the 2000s. While the price increase took place during a period of low shock variance, shock persistence increased during this period, as well as the elasticity relative to demography and income. Low reactivity of the housing stock to housing prices may create construction bottlenecks and explain these nonlinearities. However, even though our framework is very flexible, part of the price increase remains unexplained.
Keywords: housing bubble; housing credit; housing demand; housing supply; time-varying VAR, stochastic volatility (search for similar items in EconPapers)
JEL-codes: R20 G21 C32 (search for similar items in EconPapers)
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