Multiple regression analysis

Abstract

Economic issues include : Durable consumption goods Credit constraints and gearing Econometric issues include : OLS using EViews Multiple regression analysis (MRA) F tests of restrictions Data issues include : Hedonic pricing Capturing seasonality using dummy variables Dummy variable trap The issue Developments in housing markets have wide-ranging implications for the macro-economy. Increases in house prices will boost household wealth, thereby boosting consumption and fostering increases in aggregate demand. Increases in house prices may also affect consumer confidence and expectations, increasing general optimism within the economy. On the other hand, rigidities in housing markets have crucial implications for labour mobility, employment and unemployment. For example, housing market volatility will limit the ability of people to move in search of better jobs: Oswald (1997) observed that countries with fastest growth in home ownership in the 1980s and 1990s had the fastest growth in unemployment and attributed this to the labour immobility of owner occupiers in depressed housing markets, particularly those home owners who face negative equity (a situation which occurs when mortgage borrowings on a property exceed the value of the mortgaged property). The affordability of housing will also affect householders' decisions to invest in housing: as house prices rise and incomes fall, people will choose other alternatives (e.g. renting, living with family) and cannot afford to enter the housing market either because their incomes are too low and/or because they cannot get easy access to mortgage credit.