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How effective are policy interventions in a spatially-embedded international real estate market?

How effective are policy interventions in a spatially-embedded international real estate market?
How effective are policy interventions in a spatially-embedded international real estate market?
We introduce the role of `space' in analysing the effect of macroeconomic policy interventions on cross-country housing price movements. We build an empirically testable analytical model and test our theoretical predictions for a panel of European countries over the period 1985-2015. Our aim is to demonstrate that while macroeconomic policy exerts a significant impact on international housing markets, the magnitude of such impacts may be overestimated in the absence of spatial frictions. To test our hypotheses, we employ a spatial dynamic panel method and quantify \emph{intra}- and \emph{inter}-country differences of the effects of macroeconomic policy interventions on spatially interdependent housing markets. Endogeneity issues arise in our estimation, which we ameliorate by employing the spatial Durbin model for panel data. Following this approach, we include spatial, temporal and spatio-temporal lags for identification purposes. We show that a spatially-embedded model produces relatively smaller and correct signs for macroeconomic variables in contrast to the traditional non-spatial model. It is concluded that empirical estimates from the traditional model are consistently over-estimated. These have significant policy implications for the exact role of macroeconomic interventions in housing price movements. A battery of robustness tests and evaluations of predictive performance confirm our results.
Estimation bias, Housing price variations, Macroeconomic adjustments, Real estate market, Spatial dynamic panel regression, Spatial frictions
1573-045X
1-42
Duan, Kun
9f37c2f9-7f41-4c71-9790-16795820e7d6
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4
Wolfe, Simon
9a2367fc-36cc-496a-bbd2-e7346bcbb19e
Duan, Kun
9f37c2f9-7f41-4c71-9790-16795820e7d6
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamata
5e489f1d-9fe0-44b3-8027-bfa3ec6bfbd4
Wolfe, Simon
9a2367fc-36cc-496a-bbd2-e7346bcbb19e

Duan, Kun, Mishra, Tapas, Parhi, Mamata and Wolfe, Simon (2018) How effective are policy interventions in a spatially-embedded international real estate market? Journal of Real Estate Finance and Economics, 1-42. (doi:10.1007/s11146-018-9654-3).

Record type: Article

Abstract

We introduce the role of `space' in analysing the effect of macroeconomic policy interventions on cross-country housing price movements. We build an empirically testable analytical model and test our theoretical predictions for a panel of European countries over the period 1985-2015. Our aim is to demonstrate that while macroeconomic policy exerts a significant impact on international housing markets, the magnitude of such impacts may be overestimated in the absence of spatial frictions. To test our hypotheses, we employ a spatial dynamic panel method and quantify \emph{intra}- and \emph{inter}-country differences of the effects of macroeconomic policy interventions on spatially interdependent housing markets. Endogeneity issues arise in our estimation, which we ameliorate by employing the spatial Durbin model for panel data. Following this approach, we include spatial, temporal and spatio-temporal lags for identification purposes. We show that a spatially-embedded model produces relatively smaller and correct signs for macroeconomic variables in contrast to the traditional non-spatial model. It is concluded that empirical estimates from the traditional model are consistently over-estimated. These have significant policy implications for the exact role of macroeconomic interventions in housing price movements. A battery of robustness tests and evaluations of predictive performance confirm our results.

Text real-final-version160118(1) - Accepted Manuscript
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Accepted/In Press date: 18 January 2018
e-pub ahead of print date: 22 February 2018
Keywords: Estimation bias, Housing price variations, Macroeconomic adjustments, Real estate market, Spatial dynamic panel regression, Spatial frictions

Identifiers

Local EPrints ID: 417241
URI: https://eprints.soton.ac.uk/id/eprint/417241
ISSN: 1573-045X
PURE UUID: 7261673d-0044-4edb-a4d8-8b67edcce510

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Date deposited: 26 Jan 2018 17:30
Last modified: 13 Mar 2018 17:30

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Contributors

Author: Kun Duan
Author: Tapas Mishra
Author: Mamata Parhi
Author: Simon Wolfe

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