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Lithuanian house price index: modelling and forecasting

Laurynas Narusevicius (), Tomas Ramanauskas, Laura Gudauskaite () and Tomas Reichenbachas ()
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Laurynas Narusevicius: Bank of Lithuania
Laura Gudauskaite: Bank of Lithuania
Tomas Reichenbachas: Bank of Lithuania

No 28, Bank of Lithuania Occasional Paper Series from Bank of Lithuania

Abstract: Timely monitoring of the housing market developments in Lithuania is one of the key elements in the analysis framework of the macroprudential authority aiming to contribute to financial stability in Lithuania. In this paper, we addressed three important questions related to Lithuanian house prices, namely, whether house prices are under- or over valuated, which explanatory variables have the biggest impact on the growth of house prices and what the future development of the Lithuanian house price index could be. Three separate modelling and forecasting exercises were performed in order to tackle these questions. The first exercise employs the vector error correction modelling (VECM) approach to assess under- or overvaluation of the house prices. We then use an autoregressive distributed lag model (ARDL) to evaluate which explanatory variables have the biggest impact on house price growth. As the last exercise, we develop a suite of models that are used to forecast future development of the house price index. The analysis presented in this paper may be viewed as a further step towards more formalised modelling and forecasting of the Lithuanian house price index.

Keywords: House price index; fundamental value; time series models; forecasting; forecast combination (search for similar items in EconPapers)
JEL-codes: C22 C32 C53 E37 R30 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019-11-19
New Economics Papers: this item is included in nep-ets, nep-for, nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:lie:opaper:28

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