House Prices and Economic Growth |
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Authors: | Norman Miller Liang Peng Michael Sklarz |
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Institution: | 1.School of Business Administration,University of San Diego,San Diego,USA;2.Leeds School of Business,University of Colorado at Boulder,Boulder,USA;3.Collateral Analytics,Honolulu,USA |
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Abstract: | Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically
studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable
house price changes, which we use to capture the collateral and wealth effects of house prices respectively. We further analyze
the relationship between the effects and household borrowing constraints, as well as the temporal pattern of the effects.
Our analysis provides the following findings. First, house price changes have significant effects on GMP growth, and the effect
of predictable changes (the collateral effect) is about three times stronger than the effect of unpredictable changes (the
wealth effect). Second, the persistent component of predictable changes has a stronger collateral effect than the novel component.
Third, when households are more financially constrained, the collateral effect is stronger, the wealth effect is weaker, and
the total effect remains unchanged. Finally, the effects last for eight quarters, and peak on the fourth quarter after house
price changes take place. |
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Keywords: | |
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