Do House Prices Impact Consumption and Interest Rate? Evidence from OECD Countries using an Agnostic Identification Procedure

Christophe André, Rangan Gupta and Patrick Kanda (patrick.kanda@up.ac.za)
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Patrick Kanda: Department of Economics, University of Pretoria

No 201118, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the existence of significant spillovers from the housing sector onto the wider economy for the seven major OECD countries using Uhlig's (2005) agnostic identification procedure. This method allows identifying a housing demand shock in a six-variable VAR model by imposing sign restrictions on the impulse responses of consumer prices, residential investment, real house prices and mortgage loans, while private consumption and nominal interest rate responses are left unrestricted. The results suggest that consumption responds positively and significantly to a house price shock in Canada, France, Japan and the UK. On the other hand, a significant positive delayed response of nominal interest rates follows a house price shock in Germany, Japan, the UK and the US, suggesting that while central banks do not seem to respond instantly and systematically to a housing demand shock, the real repercussions of the latter on the economy tend to translate into higher policy rates after a few quarters.

Keywords: House Price; Monetary Policy; Consumption; Agnostic Identification (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 E44 E52 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2011-09
New Economics Papers: this item is included in nep-cba, nep-eec and nep-ure
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Do House Prices Impact Consumption and Interest Rate? Evidence from OECD Countries using an Agnostic Identification Procedure (2012)
Working Paper: Do House Prices Impact Consumption and Interest Rate?: Evidence from OECD Countries Using an Agnostic Identification Procedure (2012)
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