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The Time-Varying Impact of Uncertainty Shocks on the Comovement of Regional Housing Prices of the United Kingdom

Author

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  • Oguzhan Cepni

    (Copenhagen Business School, Department of Economics, Porcelænshaven 16A, Frederiksberg DK-2000, Denmark)

  • Hardik A. Marfatia

    (Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

The housing markets in districts across the United Kingdom (UK) co-move over time. We use the dynamic factor model to decompose the co-movement in house prices of the smallest possible geographical unit into national, regional, and idiosyncratic factors. Using the Bayesian time-varying parameter VAR (TVP-VAR) model, we study the dynamic impact of uncertainty shocks on the synchronization in housing markets. We find that the estimated national factor accurately tracks the overall housing market cycles in the UK and explains nearly all the variations in East, SouthEast, and SouthWest districts. Furthermore, the results from TVP-VAR indicate that the estimated response of the national factor to uncertainty shocks is negative. However, the magnitude of the effect is more pronounced and persists longer in the case of housing price uncertainty shocks compared to overall economic uncertainty. Overall, our results suggest that uncertainty about house prices is a primary driver of the national factor.

Suggested Citation

  • Oguzhan Cepni & Hardik A. Marfatia & Rangan Gupta, 2021. "The Time-Varying Impact of Uncertainty Shocks on the Comovement of Regional Housing Prices of the United Kingdom," Working Papers 202168, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202168
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    More about this item

    Keywords

    Uncertainty Shocks; Macroeconomic Shocks; Housing Prices; Regional Markets; the United Kingdom;
    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
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • 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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