Information transmission between oil and housing markets

Abstract

This paper investigates the equicorrelation and connectedness between oil and housing markets using the DECO-GARCH methodology and the connectedness index. We find a high degree of connectedness between these two markets. We also find that the magnitude of correlation and connectedness between these markets is more pronounced during extreme events, which is in line with the literature investigating connectedness in various other markets. Then, when we consider the net connectedness and pairwise connectedness, we find that the US housing market is the dominant net transmitter to the other housing markets. Furthermore, looking at the GFC period of 2007–2009, our paper sheds light on the role of the oil market as a mediator of information transmission arising from its ability to convey shocks from the US to the other OECD housing markets, especially with regard to oil-dependent OECD countries. The paper discusses important policy implications of the findings.