Housing market regimes and the macroeconomy: a nonlinear study of the effects of housing price shocks

Abstract

ABSTRACT We estimate a series of Threshold Vector Autoregression models to examine the nonlinear nature of interactions among housing market condition, output growth, credit market condition, monetary policy, and inflation across different housing market regimes. We find that the effects of housing, output, monetary, and credit shocks are highly regime-dependent, both qualitatively and quantitatively. Almost all shocks have larger impacts when the housing market is in the distress regime than normal regime. Furthermore, we find that the asymmetrical effects of shocks are the most prominent when the housing market moves in and out of the distress regime. However, once the housing market is in the normal regime, the asymmetry becomes economically insignificant when the housing market condition crosses between moderate and booming growth phases.