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Historical decomposition of the Cyprus Residential Property Prices

Author

Listed:
  • Chryso Aristidou

    (Central Bank of Cyprus)

  • George Thucydides

    (Central Bank of Cyprus)

Abstract

The aim of this paper is to examine the main driving force(s) of residential property prices during various periods, via historical decomposition. This is achieved by establishing the contribution of di?erent structural shocks to the historical dynamics of the residential property price index. For every quarter in the sample, the growth rate of the residential property price index is decomposed into its di?erent components in order to assess the driving forces behind residential property prices ?uctuations. In e?ect, an insight into possible disconnection of property prices and economic fundamentals could potentially also be gained, thus providing indications of possible vulnerabilities building up in the sector, which would in turn impose risks on fnancial stability. Furthermore, emphasis is given on the recent surge in construction costs which is shown to play a predominant role in the recent residential property price dynamics.

Suggested Citation

  • Chryso Aristidou & George Thucydides, 2022. "Historical decomposition of the Cyprus Residential Property Prices," Working Papers 2022-3, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2022-3
    as

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    References listed on IDEAS

    as
    1. Stephen G. Cecchetti, 2008. "Measuring the Macroeconomic Risks Posed by Asset Price Booms," NBER Chapters, in: Asset Prices and Monetary Policy, pages 9-43, National Bureau of Economic Research, Inc.
    2. Philipp Hartmann, 2015. "Real Estate Markets and Macroprudential Policy in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 69-80, March.
    3. Nektarios A. Michail & George Thucydides, 2019. "The impact of foreign demand on Cyprus house prices," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 13(2), pages 48-71, December.
    4. Luca GATTINI & Paul HIEBERT, 2010. "Forecasting and Assessing Euro Area House Prices Through the Lens of Key Fundamentals," EcoMod2010 259600061, EcoMod.
    5. Antje Hildebrandt & Duy T. Huynh-Olesen & Katharina Steiner & Karin Wagner, 2013. "Residential Property Prices in Central, Eastern and Southeastern European Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 52-76.
    6. Bengtsson, Elias & Grothe, Magdalena & Lepers, Etienne, 2020. "Home, safe home: Cross-country monitoring framework for vulnerabilities in the residential real estate sector," Journal of Banking & Finance, Elsevier, vol. 112(C).
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    More about this item

    Keywords

    Construction cost; Residential Property Price Index (RPPI); Historical Decomposition;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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