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The importance of real and nominal shocks on the UK housing market

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posted on 2011-01-01, 00:00 authored by Paresh Narayan, S Narayan
The goal of this paper is to examine the responsiveness of the UK housing market to real and nominal shocks. To achieve this goal, we use a structural VAR model, based on quarterly data for the period 1957:1-2009:4. We find that in response to an interest rate shock, house prices (aggregate house price and modern house price) fall sharply over the first 4 years and do not recover to their pre-shock level. In response to a real GDP shock, both house prices react in a positive inverted U-shaped manner. Finally, we find that an inflation shock has a U-shaped negative impact on aggregate and modern house prices in the UK.

History

Series

School Working Paper - Financial Econometrics Series ; SWP 2011/05

Pagination

1 - 27

Publisher

Deakin University, School of Accounting, Economics and Finance

Place of publication

Geelong, Vic.

Language

eng

Notes

School working paper (Deakin University. School of Accounting, Economics and Finance) ; 2011/05 The goal of this paper is to examine the responsiveness of the UK housing market to real and nominal shocks. To achieve this goal, we use a structural VAR model, based on quarterly data for the period 1957:1-2009:4. We find that in response to an interest rate shock, house prices (aggregate house price and modern house price) fall sharply over the first 4 years and do not recover to their pre-shock level. In response to a real GDP shock, both house prices react in a positive inverted U-shaped manner. Finally, we find that an inflation shock has a U-shaped negative impact on aggregate and modern house prices in the UK.

Publication classification

CN.1 Other journal article

Copyright notice

2011, The Authors

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