The interplay between output, inflation, interest rates and house prices: international evidence

Abstract

We quantify the linkages between real house prices and the price level, output and interest rates for 10 OECD countries by applying vectorautoregressions. As results emerge, that (1) interest rate shocks lower real house prices and explain between 12% and 24% of the variation in house prices, (2) house prices are driven by output movements in most countries, while house prices are more volatile compared with output and the price level, and (3) house price shocks increase output, prices as well as interest rates and contribute significantly to the variation in these variables. Our results indicate that housing markets have a stronger impact onto macroeconomic variables compared to the impact of macroeconomic variables onto housing markets.