Abstract

Employing a non-standard VAR technique, I decompose house price movements into news and noise shocks and I analyze their macroeconomic effects in the US between 1963 and 2016. News shocks are identified as disturbances that induce a lagged permanent effect on rents, the key fundamental in the housing market, while noise shocks are assumed to move house prices without affecting rents. News shocks are the main driver of the US housing market in the long-run. However, noise shocks explain a large share of house prices volatility and they have a non-negligible effect on residential investment and GDP over short and medium horizons. Noise shocks contributed to all housing cycles since the '60s, including the boom-bust episode of 2001-2009.

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