Does Economic Policy Uncertainty Forecast Real Housing Returns in a Panel of OECD Countries? A Bayesian Approach

Christina Christou (), Rangan Gupta and Christis Hassapis ()
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Christina Christou: School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus
Christis Hassapis: Department of Economics, University of Cyprus, P.O. Box 20537, CY-1678 Nicosia, Cyprus

No 201637, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates whether the news-based measure of economic policy uncertainty (EPU) could help in forecasting the real housing returns in ten (Canada, France, Germany, Italy, Japan, The Netherlands, South Korea, Spain, United Kingdom, and United States of America) Organization for Economic Co-operation and Development (OECD) countries. We analyze the quarterly out-of-sample period of 2008:Q2-2014:Q4, given an in-sample period of 2003:Q1- 2008:1Q1, using time series and panel data-based vector autoregressive models, with the latter allowing for heterogeneity, and static and dynamic interdependence. It is found that regardless of the forecasting model considered, EPU is useful for forecasting real housing returns. Our results show that, panel data models, especially the Bayesian variants which allow for parameter shrinkage, consistently beat time series autoregressive models suggesting the importance of pooling information when trying to forecast real housing returns.

Keywords: Real Housing Returns; Economic Policy Uncertainty; OECD Countries; Panel Vector Autoregressions (search for similar items in EconPapers)
JEL-codes: C33 C53 R31 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-04
New Economics Papers: this item is included in nep-for and nep-ure
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Journal Article: Does economic policy uncertainty forecast real housing returns in a panel of OECD countries? A Bayesian approach (2017)
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