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Real estate uncertainty and financial conditions over the business cycle

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  • Baek, Ingul
  • Liu, Jia
  • Noh, Sanha

Abstract

We investigate the nonlinear effects of real estate uncertainty shocks and the role of financial conditions in the U.S. over the business cycle. We employ a logistic smooth transition vector autoregressive (LSTVAR) model and identify uncertainty shocks through short-run restrictions. The results illustrate that real estate uncertainty shocks negatively affect the housing market, reducing housing prices, housing starts, and employment in the construction sector. The influence of these shocks is notably more pronounced during recessions when compared to results from a standard linear VAR model in terms of the magnitude and persistence of the responses of the housing market-related variables. Additionally, favorable financial conditions dampen the dynamic responses of both macroeconomic indicators and the housing market to real estate uncertainty.

Suggested Citation

  • Baek, Ingul & Liu, Jia & Noh, Sanha, 2024. "Real estate uncertainty and financial conditions over the business cycle," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 656-675.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:656-675
    DOI: 10.1016/j.iref.2023.10.033
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    More about this item

    Keywords

    Financial conditions; Housing market; LSTVAR; Real estate uncertainty;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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