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Time variation in the relative importance of permanent and transitory components in the U.S. housing market

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  • Kishor, N. Kundan
  • Kumari, Swati
  • Song, Suyong

Abstract

This paper uses an unobserved component model with heteroskedastic disturbances based on Harvey et al. (1992) to measure the time-varying importance of permanent and transitory components in the U.S. house prices. Our findings show that the cyclical component in the U.S. housing market is highly persistent and house prices were more than 20% above the trend at the peak of the housing boom in 2006. Our results also suggest that there was a big increase in the relative importance of the transitory shock variance at the peak of the housing crisis.

Suggested Citation

  • Kishor, N. Kundan & Kumari, Swati & Song, Suyong, 2015. "Time variation in the relative importance of permanent and transitory components in the U.S. housing market," Finance Research Letters, Elsevier, vol. 12(C), pages 92-99.
    • Handle: RePEc:eee:finlet:v:12:y:2015:i:c:p:92-99
    DOI: 10.1016/j.frl.2014.11.004
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    More about this item

    Keywords

    U.S. housing market; Unobserved component model; Heteroskedasticity; GARCH; IGARCH;
    All these keywords.

    JEL classification:

    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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