House Prices, Disposable Income, and Permanent and Temporary Shocks

Research output: Working paperDiscussion paper

Abstract

This paper specifies a two-variable system of house prices and income for N.Z., U.K. and the U.S., covering periods from 1973:4 through 2008:2. The analysis allows the identification of differences in house price¿income relationships over sub-periods and, using an SVAR approach, compares the responses of house prices when faced with permanent and transitory shocks to income. It continues by decomposing each historical house prices series into their permanent, temporary and deterministic components. Our results suggest that while real house prices have a long-run relationship with real income in all three economies, the responsiveness of house prices to innovations in income will vary over both time and markets depending on whether the income disturbances are viewed as permanent or temporary. The evidence suggests that N.Z. and U.K. housing markets are sensitive to both permanent and transitory shocks to income while the U.S. market reacts to temporary shocks with the permanent component having a largely insignificant role to play in house price composition. In N.Z. the temporary component of house prices has tended to be positive over time, pushing prices higher than they would have been otherwise while in the U.K. both permanent and temporary components have tended to reinforce each other. Overall, there is no clear consistent global pattern regarding the importance of these shocks which implies that housing markets will react differently to the vagaries of global and domestic economic activity driving such shocks.
Original languageEnglish
PublisherUniversity of Aberdeen
Number of pages2
Publication statusPublished - Aug 2009

Publication series

NameUniversity of Aberdeen Business School Working Paper Series
No.08
Volume2009
ISSN (Print)0143-4543

Fingerprint

Temporary shock
Income
House prices
Permanent shock
Permanent and transitory shocks
Housing market
Economic activity
Permanent component
Responsiveness
Long-run relationship
Real income
Innovation

Cite this

Fraser, P., Hoesli, M. E. R., & McAlevey, L. (2009). House Prices, Disposable Income, and Permanent and Temporary Shocks. (University of Aberdeen Business School Working Paper Series; Vol. 2009, No. 08). University of Aberdeen.

House Prices, Disposable Income, and Permanent and Temporary Shocks. / Fraser, Patricia; Hoesli, Martin Edward Ralph; McAlevey, Lynn .

University of Aberdeen, 2009. (University of Aberdeen Business School Working Paper Series; Vol. 2009, No. 08).

Research output: Working paperDiscussion paper

Fraser, P, Hoesli, MER & McAlevey, L 2009 'House Prices, Disposable Income, and Permanent and Temporary Shocks' University of Aberdeen Business School Working Paper Series, no. 08, vol. 2009, University of Aberdeen.
Fraser P, Hoesli MER, McAlevey L. House Prices, Disposable Income, and Permanent and Temporary Shocks. University of Aberdeen. 2009 Aug. (University of Aberdeen Business School Working Paper Series; 08).
Fraser, Patricia ; Hoesli, Martin Edward Ralph ; McAlevey, Lynn . / House Prices, Disposable Income, and Permanent and Temporary Shocks. University of Aberdeen, 2009. (University of Aberdeen Business School Working Paper Series; 08).
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