Macroeconomic Uncertainty and the Comovement in Buying versus Renting in the United States
Goodness Aye () and
Rangan Gupta ()
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Goodness Aye: Department of Economics, University of Pretoria, Pretoria, South Africa
No 201832, Working Papers from University of Pretoria, Department of Economics
This paper characterizes the sources of the comovement in the U.S metropolitan buy-rent growth rate. The analysis is based on quarterly buy-rent indices from 1982:Q1 to 2016:Q4. To this end, we used the dynamic factor model to decompose the index into national and local factors. The national component contributed more to the variation in the buy-rent indices relative to the local component with variance decomposition values of 72% and 27% respectively albeit this varied across the cities. We further examined the sensitivity of the national buy-rent factor to macroeconomic uncertainty. Our full sample results show that uncertainty has a significant negative effect on the buy-rent behavior thus favouring buying a home as a wealth accumulation channel relative to renting a similar home. The results from the recursive estimation further confirmed a dominant negative relationship with fewer periods of positive relationship. The implications of these findings are drawn.
Keywords: Buy-rent choice; consumer behavior; dynamic latent factor model; development; economic uncertainty (search for similar items in EconPapers)
JEL-codes: C32 C38 E21 E30 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201832
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