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Do House Prices Hedge Inflation in the US? A Quantile Cointegration Approach

Christina Christou (), Rangan Gupta (), Wendy Nyakabawo () and Mark Wohar ()
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Christina Christou: School of Economics and Management, Open University of Cyprus, Cyprus
Wendy Nyakabawo: Department of Economics, University of Pretoria, South Africa

No 201707, Working Papers from University of Pretoria, Department of Economics

Abstract: This study analyses the long-run relationship between U.S house prices and non-housing Consumer Price Index (CPI) over the monthly period 1953 to 2016 using a quantile cointegration analysis. Our findings show evidence of instability in standard cointegration models, suggesting possibility of structural breaks and nonlinearity in the relationship between house prices and non-housing CPI. This motivates the use of a time-varying approach, namely, a quantile cointegration analysis, which allows the cointegrating coefficient to vary over the conditional distribution of house prices and simultaneously test for the existence of cointegration at each quantile. Our results suggest that the U.S non-housing CPI and house price index series are cointegrated at lower quantiles only, with house prices over-hedging inflation at these quantiles.

Keywords: house prices; inflation; hedging; quantile cointegration (search for similar items in EconPapers)
JEL-codes: C22 C32 E31 R31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-02
New Economics Papers: this item is included in nep-his, nep-mac, nep-rmg and nep-ure
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