Asymmetric Nonlinear Impact of Oil Prices and Inflation on Residential Property Prices: a Case of US, UK and Canada

Abstract

This paper examines the nonlinear impact of oil prices and inflation on residential prices in the US, the UK and Canada using quarterly data from 1975 to 2017. The study uses nonlinear autoregressive distributed lag (NARDL) bounds testing approach that allows possible asymmetric effects in both short- and long-run. Our results highlight that oil prices, interest and inflation rates and income have asymmetric relationship with residential prices in US, UK and Canada; however, the extent and magnitude of this relationship varies. Long run coefficients of Inflation rate highlights significance for residential prices in all three economies i.e. US, UK and Canada. For international oil prices however, the asymmetric effect is more pronounced in US as compared with UK and Canada. In case of US, long-run asymmetric relationship of residential prices with inflation and gross domestic product (GDP) per capita is also witnessed however, interest rate seems to influence residential prices in both UK and Canada. Our paper has implications for the investors in residential housing markets and government authorities regulating housing sectors.