The international transmission of house price shocks Are there contagion effects

1
The international transmission of house price
shocksAre there contagion effects?

• Olivier de Bandt (BdF)
• Karim Barhoumi (BdF)
• Catherine Bruneau (Paris X and BdF)

2
Transmission/contagion

• Transmission reaction of house prices to
  fundamentals in  normal times , including all
  available information
• Fundamentals are correlated
• Arbitrage behaviour across markets smooth out
  idiosyncracies
• Contagion 2 definitions
• Amplitude of reaction differs in  crisis
  periods , with possible non linearities
• Pandemic model  from local to global and global
  to local 

3
Data

• House prices from OECD and national sources
• OECD quarterly national accounts GDP,
  inflation, short and long term interest rates,
  housing investment
• 15 countries AUS, CAN, CHE, FIN, FRA, DEU, IRE,
  ITA, JPN, NLD, NOR, NZL, ESP, UK, US

4
Methods

• Single linear equations to estimate the link
  between local and global levels, including
  house prices
• Linear Favar models and causality tests
• to take into account endogeneity
• But need to accomodate the high persistence of
  variables
• Crisis dummies and STAR models to assess possible
  non linearities

5
Main Findings

• Contagion from US house prices, which appear to
  be exogenous
• Spreading to the rest of the world, according to
  the  pandemic view  of contagion common house
  prices  Granger cause  domestic house prices in
  Favar models

6
Plan

• I A closer look at the data
• II- Empirical results
• III- Conclusion

7
l- A closer look at the data (1/4)Common SWs
house prices in OECD countries
8
I- A closer look at the data (2/4)Using a larger
database fac1 correlated with interest rates
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I- A closer look at the data (3/4)Using a larger
database fac2 correlated with GDP growth)
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I- A closer look at the data (4/4)Using a larger
database fac3 corr. with OGAP
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II- Empirical results

• 1- single one period ahead equation with global
  house price factor
• 2- single one period ahead equation with crisis
  dummy
• 3-single one period ahead equation with other
  global factors
• 4- single non linear (LSTAR) with all global
  factors
• 5- causality tests in Favar models

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1- Single one period ahead linear equationsgt
international housing factor is significant in
many countries AUS, ESP, UK
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2- robustness to Financial Crisis periods
(Reinhart Rogoff, 2008)
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Tab2 Robustness to crisis periods
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3- Tab3 Sensitiveness to global factors in
single one period ahead equation
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4-LSTAR models contemporaneous impact of the
threshold variable in the two regimes
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5-Causality in favar models of reduced order US
house prices are exogeneous and affect Common
house prices
18
Causality in favar models of reduced order Other
domestic house prices are affected by Common
house prices
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Causality from systems Other domestic house
prices are affected by Common house prices
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III-Conclusion

• Evidence in favour of international transmission
• Evidence in favour of  pandemic model  with
  contagion from USA to rest of countries