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Chung, Keunsuk
School of Business Administration
Research Interests
  • International Macroeconomics
  • Economic Growth
  • International Capital Flows

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House prices and business cycles: The case of the UK

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Title
House prices and business cycles: The case of the UK
Author
Kim, Jan R.Chung, Keunsuk
Issue Date
2016-06
Publisher
SAGE PUBLICATIONS LTD
Citation
INTERNATIONAL AREA STUDIES REVIEW, v.19, no.2, pp.131 - 146
Abstract
This paper investigates the role of house prices in UK business cycles since the mid-1950s. First a Markov-switching common factor model is constructed to capture business cycle co-movements and the inherently different regimes across expansion and recession phases. Then house-price variables are incorporated into the baseline model to evaluate their importance in fluctuations of real economic activity. When house prices are introduced into the model as direct determinants of the evolution of individual macroeconomic indicators, only their declines have nontrivial effects on the movements of the macro variables and consequently on business cycles. Alternatively, when house prices are incorporated as factors affecting transition probabilities, strong evidence is found that house prices significantly affect the transitions of the UK economy between periods of expansion and recession. It is confirmed again that declines in house prices are more significant than their increases in house-price growth rates as factors affecting the business cycles. Finally, the importance of house price decreases is found robust to the inclusion of financial variables in the model and to the use of a different house price index.
URI
https://scholarworks.unist.ac.kr/handle/201301/18171
URL
http://ias.sagepub.com/content/19/2/131
DOI
10.1177/2233865915581432
ISSN
2233-8659
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