House Prices, Interest Rates and Macroeconomic Fluctuations: International Evidence

TL;DRAbstract

This paper studies the dynamic properties of international house prices, stock prices, interest rates and macroeconomic aggregates in industrial countries. While the dynamics of stock market returns and interest rates have been studied previously, we use a new dataset to gain insight into both the comovement of house price across industrial countries and the relationship between the fluctuations of house price with the fluctuations of financial asset returns and macroeconomic aggregates. Despite the fact that housing is the quintessential nontradable asset, we find a large degree of synchronization or comovement in the growth rate of real house prices in industrialized countries. We then show that much of this comovement can be related to a common dynamic component in interest rates across these countries. While we confirm the existence of a great degree of comovement in macroeconomic aggregates (namely, real output, consumption, and residential investment), we find little evidence tha

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