House Price Shock and Business Cycle: The French Case

Asma Ben Saad, Ahmad Alqatan, Muhammad Arslan

Abstract


This study examined the relationship between house prices and the business cycle. Specifically, we examined the effect of house price and stock price in the French business cycle. After presenting the transmission channels from house price to the business cycle, we analyzed the cyclical properties of house prices and compared them with the Gross Domestic Product (GDP) cycle. The question arises: are fluctuations in economic activity more sensitive to a real estate price shock (property wealth effect) or a stock price shock (stock market wealth effect)? We collected the data over the 1980Q1-2015Q4 period and investigated the effects of house price and stock price shocks on French GDP by employing the Structural VAR model. We found the evidence that house price strongly affects the GDP cycle. Indeed, their response is significantly more important than the stock price, suggesting that the housing market might contribute to the persistent propagation of the shocks hitting the economic system. The study has important implications for both academia and policymakers and offers new insights into the French experience.


Keywords


house price; business cycle; var model; economic activity; stock price.

JEL Codes


A10; B4.

Full Text:

PDF

References


Ahearne, A. G., Ammer, J., Doyle, B. M., Kole, L., and Martin, R. F., 2005. Monetary policy and house prices: a cross-country study. FRB International Finance Discussion Paper, 841(1-77).

Alvarez, L. J., Bulligan, G., Cabrero, A., Ferrara, L., and Stahl, H., 2010. Housing cycles in the major euro area countries: Springer. http://dx.doi.org/10.1007/978-3-642-15340-2_5

André, C., Gupta, R., and Kanda, P. T., 2012. Do house prices impact consumption and interest rate?: Evidence from OECD countries using an agnostic identification procedure. OECD Economic Department Working Papers, 947, 1-47. http://dx.doi.org/10.1787/18151973

Aßmann, C., Boysen‐Hogrefe, J., and Jannsen, N., 2013. Costs of housing crises: International evidence. Bulletin of Economic Research, 65(4), 299-313.

Aviat, A., Bricongne, J.-C., and Pionnier, P.-A., 2007. Richesse patrimoniale et consommation: un lien ténu en France, fort aux États-Unis. Note de conjoncture de l’INSEE(décembre), 37-52.

Baugnet, V., Butzen, P., Cheliout, S., Melyn, W., and Wibaut, Q., 2011. La crise des marches de l’immobilier résidentiel est-elle terminée? Un tour d’horizon international. Revue économique. Un tour d’horizon international. www.nationalebank.be/doc/ts/publications/economicreview/2011/

revecoi2011_h3.pdf.

Bjornland, H. C., and Jacobsen, D. H., 2013. House prices and stock prices: Different roles in the US monetary transmission mechanism. The Scandinavian Journal of Economics, 115(4), 1084-1106. http://dx.doi.org/10.1111/sjoe.12031

Bjørnland, H. C., and Jacobsen, D. H., 2013. House prices and stock prices: Different roles in the US monetary transmission mechanism. The Scandinavian Journal of Economics, 115(4), 1084-1106.

Blot, C., Le Bayon, S., Lemoine, M., and Levasseur, S., 2009. De la crise financiere a la crise economique. Revue de l’OFCE, 110(3), 255-281. http://dx.doi.org/10.3917/reof.110.0225

Borgy, V., Clerc, L., and Renne, J. P., 2010. House price Boom/Bust Cycles: Identification Issues and Macro-prudential Implications Housing Markets in Europe (pp. 359-383): Springer. http://dx.doi.org/10.1007/978-3-642-15340-2_16

Bui, T., 2020. A study of factors influencing the price of apartments: Evidence from Vietnam. Management Science Letters, 10(10), 2287-2292. http://dx.doi.org/10.5267/j.msl.2020.3.007

Cesa-Bianchi, A., 2013. Housing cycles and macroeconomic fluctuations: A global perspective. Journal of International Money and Finance, 37, 215-238. http://dx.doi.org/10.1016/j.jimonfin.2013.06.004

Christensen, I., Corrigan, P., Mendicino, C., and Nishiyama, S. I., 2016. Consumption, housing collateral and the Canadian business cycle. The Canadian Journal of Economics. Revue Canadienne d'Economique, 49(1), 207-236. http://dx.doi.org/10.1111/caje.12195

Cloyne, J., Huber, K., Ilzetzki, E., and Kleven, H., 2019. The effect of house prices on household borrowing: A new approach. The American Economic Review, 109(6), 2104-2136. http://dx.doi.org/10.1257/aer.20180086

Cummins, W., 1962. The Impulse Response Function and Ship Motions. Schiffstechnik, 9, 101-109.

Demary, M., 2009. The Link between Output, Inflation, Monetary Policy and Housing Price Dynamics: University Library of Munich.

Favara, G., and Imbs, J., 2015. Credit supply and the price of housing. The American Economic Review, 105(3), 958-992. http://dx.doi.org/10.1257/aer.20121416

Girouard, N., Kennedy, M., van den Noord, P., and Andre, C., 2006. Recent House Price Developments: The Role of Fundamentals: OECD Publishing.

Goodhart, C., and Hofmann, B., 2001. Asset prices, financial conditions and the transmission of monetary policy. Paper presented at the Symposium of the Federal Reserve Bank of San Francisco.

Goodhart, C., and Hofmann, B., 2008. House prices, money, credit, and the macroeconomy. Oxford Review of Economic Policy, 24(1), 180-205. http://dx.doi.org/10.1093/oxrep/grn009

Helbling, T., and Terrones, M., 2003. When bubbles burst. World Economic Outlook, 4(2), 61-94.

Iacoviello, M., 2005. House prices, borrowing constraints, and monetary policy in the business cycle. The American Economic Review, 95(3), 739-764. http://dx.doi.org/10.1257/0002828054201477

Jorda, O., Schularick, M., and Taylor, A. M., 2016. The great mortgaging: Housing finance, crises and business cycles. Economic Policy, 31(85), 107-152. http://dx.doi.org/10.1093/epolic/eiv017

Jud, G. D., and Winkler, D. T., 2003. The Q theory of housing investment. The Journal of Real Estate Finance and Economics, 27(3), 379-392. http://dx.doi.org/10.1023/A:1025846309114

Karshenasan, A., and Beiranvand, M., 2013. A review on weaknesses and strengths of delivering Mehr housing project in terms of achieving economical goals. 3(9), 2521-2530. http://dx.doi.org/10.5267/j.msl.2013.08.010

Kunsch, H., 2020. Statistical aspects of self-similar processes: De Gruyter.

Künsch, H., 1987. Statistical aspects of self-similar processes. Paper presented at the First World Congress of the Bernoulli Society.

Lecat, R., and Mésonnier, J.-S., 2005. Dynamique des prix des logements: quel rôle des facteurs financiers? . Bulletin de la Banque de France, 1333.

Lutkepohl, H., 2010. Variance Decomposition. In S. N. Durlauf and L. E. Blume (Eds.), Macroeconometrics and Time Series Analysis (pp. 369-371): Palgrave Macmillan UK. http://dx.doi.org/10.1057/9780230280830_38

Mishkin, F. S., 1996. Les canaux de transmission monetaire: Lecons pour la politique monetaire. 27, 91-105.

Moghadasi, I., and Rad, V., 2019. The relationship between stock market development, business cycle and risk of banks. 5(3), 101-106. http://dx.doi.org/10.5267/j.ac.2018.9.003

Musso, A., Neri, S., and Stracca, L., 2011. Housing, consumption and monetary policy: How different are the US and the euro area? Journal of Banking & Finance, 35(11), 3019-3041. http://dx.doi.org/10.1016/j.jbankfin.2011.04.004

Nocera, A., and Roma, M., 2017. House prices and monetary policy in the euro area: Evidence from structural VARs ECB Working Paper, 2073. https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2073.en.pdf.

Selmi, N., and Hachicha, N., 2015. Long range dependency and forecasting of housing price index and mortgage market rate: Evidence of subprime crisis. 5(5), 419-430. http://dx.doi.org/10.5267/j.msl.2015.3.012

Timbeau, X., 2014. Immobilier et cycle economique: Ce que nous apprend la Grande Recession. Revue d'Economie Financiere, 115(3), 41-68. http://dx.doi.org/10.3917/ecofi.115.0041

Van den Noord, P., 2006. Are house prices nearing a peak?: a probit analysis for 17 OECD countries. OECD Economics Department, Working Papers, 488, 1-33. http://dx.doi.org/10.1787/18151973




DOI: http://dx.doi.org/10.47743/saeb-2021-0007

Refbacks

  • There are currently no refbacks.