House Price Effect on Consumption: an MSTVAR Approach for Three OECD Countries

ABSTRACT: House prices and their effect on aggregate economy has always been a matter of interest for economists and policy makers. Especially, in recent years, after U.S. mortgage crisis many researches were conducted to study this effect to evaluate its magnitude and importance. Several theories are supporting the idea that there is a spillover from housing to other parts of economies, like consumer’s expenditure theory. In this study the effect of changes in house prices on aggregate economy was examined by a nonlinear model, Logistic Smooth Transition Autoregressive model for US, Germany and UK quarterly data from 1970 to 2011. Keywords: House prices, Nonlinearities Time Series, LSTVAR, Consumption. ……………………………………………………………………………………………………………………………………………………………………………………………………………………