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Exchange rate and housing affordability in OECD countries

Author

Listed:
  • Afees Adebare Salisu
  • Aliyu Akorede Rufai
  • Modestus Chidi Nsonwu

Abstract

Purpose - This study aims to construct alternative models to establish the dynamic relationship between exchange rates and housing affordability by estimating both the short- and long-run relationship between exchange rates and housing affordability for 18 OECD countries from 1975Q1 to 2022Q4. After that, this study demonstrates how this nexus behaves during high and low inflation regimes and turbulent times. Design/methodology/approach - This study uses the panel autoregressive distributed lag technique to examine the nexus between housing affordability to capture the distinct characteristics of the sample countries and estimate various short- and long-run dynamics in the relationship between housing affordability and exchange rate. Findings - Exchange rate appreciation improves housing affordability in the short run, whereas this connection tends to dissipate in the long run. Moreover, inflation can worsen housing affordability during turbulent times, such as the global financial crisis, in both the short and long run. Ignoring these changes in the relationship between exchange rates and housing affordability during turbulent times can lead to incorrect conclusions. Originality/value - To the best of the authors’ knowledge, this study is the first to examine the association between exchange rates and housing affordability by demonstrating how these variables behave in high and low inflation regimes and turbulent times.

Suggested Citation

  • Afees Adebare Salisu & Aliyu Akorede Rufai & Modestus Chidi Nsonwu, 2024. "Exchange rate and housing affordability in OECD countries," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 18(3), pages 668-693, January.
    • Handle: RePEc:eme:ijhmap:ijhma-10-2023-0137
    DOI: 10.1108/IJHMA-10-2023-0137
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    More about this item

    Keywords

    Exchange rate; Housing affordability; Inflation rate; Global financial crisis; OECD; A10; B41; C23; E31; F31; R21; R31;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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