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Partial pooling with cross-country priors: An application to house price shocks

Markus Roth ()

No 06/2020, Discussion Papers from Deutsche Bundesbank

Abstract: A structural Bayesian vector autoregression model predicts that - when accompanied by a decline in consumer confidence - a one-percent decrease in house prices is associated with a contraction of economic activity by 0.2 to 1.2 percent after one year. Results point to important second-round effects and additional exercises highlight the amplifying role of (i ) the mortgage rate and (ii ) consumers' expectations. A novel econometric approach exploits information available from the cross section. Shrinkage towards a cross-country average model helps to compensate for small country samples and reduces estimation uncertainty. As a by-product, the method delivers measures of cross-country heterogeneity.

Keywords: Bayesian model averaging; dummy observations; house price shocks (search for similar items in EconPapers)
JEL-codes: C11 C33 E44 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ecm, nep-mac and nep-ure
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