Abstract
PurposeThis paper aims to examine the existence of the ripple effect from Amsterdam to the housing markets of other regions in The Netherlands. It identifies which regional housing markets are influenced by house price movements in Amsterdam.Design/methodology/approachThe paper considers the ripple effect as a lead-lag effect and a long-run convergence between the Amsterdam and regional house prices. Using the real house prices for second-hand owner-occupied dwellings from 1995q1 to 2016q2, the paper adopts the Toda–Yamamoto Granger Causality approach to study the lead-lag effects. It uses the autoregressive distributed lags (ARDL)-Bounds cointegration techniques to examine the long-run convergence between the regional and the Amsterdam house prices. The paper controls for house price fundamentals to eliminate possible confounding effects of common shocks.FindingsThe cumulative evidence suggests that Amsterdam house prices have influence on (or ripple to) all the Dutch regions, except one. In particular, the Granger Causality test concludes that a lead-lag effect of house prices exists from Amsterdam to all the regions, apart from Zeeland. The cointegration test shows evidence of a long-convergence between Amsterdam house prices and six regions: Friesland, Groningen, Limburg, Overijssel, Utrecht and Zuid-Holland.Research limitations/implicationsThe paper adopts an econometric approach to examine the Amsterdam ripple effect. More sophisticated economic models that consider the asymmetric properties of house prices and the patterns of interregional socio-economic activities into the modelling approach are recommended for further investigation.Originality/valueThis paper focuses on The Netherlands for which the ripple effect has not yet been researched to the authors’ knowledge. Given the substantial wealth effects associated with house price changes that may shape economic activity through consumption, evidence for ripples may be helpful to policy makers for uncovering trends that have implications for the entire economy. Moreover, the analysis controls for common house price fundamentals which most previous papers ignored.
Highlights
Real house prices in The Netherlands are reasonably correlated across regions
The TY–Granger Causality (GC) test is performed with a vector autoregressive (VAR)(p þ 1) model to estimate the lead-lag effect between the regional and house Amsterdam prices
The autoregressive distributed lags (ARDL)-Bounds cointegration method requires that the house price series and the control variables are not integrated beyond the first order
Summary
Real house prices in The Netherlands are reasonably correlated across regions. The ripple effect is conceptually a market phenomenon in which house price shocks in one region spread out their influence to house prices in other parts of the country (Meen, 1999; Nanda and Yeh, 2014; Balcilar et al, 2012). It manifests itself by way of house prices appreciating (down-turning) in one location, and subsequently appreciating (down-turning) in other regions (Giussani and Hadjimatheou, 1991)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.