Impact of Brexit on G7 properties

Abstract

ABSTRACT In this article, we adopted the Full Information Maximum Likelihood (FIML) Markov-switching model of Yoon to examine the contribution of the UK housing business cycle to the common G7 housing business cycle between housing price and GDP seeking to access the impact of Brexit on G7 properties. Taking a sample of G7 countries we investigated a period of over 50 years, using quarterly data from 1970:II to 2020:IV. Our findings demonstrate that UK GDP is a significant variable contributing to the G7 GDP growth, and furthermore that the UK housing price is a significant variable to the G7 housing prices. Considering common international housing business cycle, we found that the UK is not a significant variable for determining the common international housing business cycle between housing price and the real growth of output in the G7 countries. Finally, applying a FIML Markov-switching model to the G7 countries, we found a common international housing business cycle during the oil shock periods of the 1970s, the financial crisis in 2008, and COVID-19 pandemic. These findings are the first empirical evidence of the comparison of COVID-19 pandemic and other crises in terms of common international housing business cycle, thus providing significant input for policymakers.