How does economic policy uncertainty affect prices of housing? Evidence from Germany

Abstract

We test the interaction between housing prices and economic policy uncertainty with controlling for the effect of the interest rate in Germany. A bootstrap rolling-window Granger causality test method is utilized for the purpose of detecting their dynamic relationship, since we find significant structural changes across the full-sample of the time series which should be taken into account to avoid estimation errors, and more importantly to get a more instructive conclusion. We find that even in Germany, where house prices are famous for their stability, a strong bilateral Granger causality still exists after controlling for the interest rate of housing loans. Furthermore, we find that though the impact of economic policy uncertainty on housing prices could be positive or negative, it significantly reduces house price volatility, while house price volatility significantly raises economic policy uncertainty, which suggests that the frequently mentioned volatility spillover effect of uncertainty on the housing market is not explanatory. Our results indicate that when the subject is a pillar industry in the national economy, considering only the volatility spillover effect caused by economic policy uncertainty may be one-sided, and the purpose of policy change may be more worthy of consideration.

Economic uncertainty and direct property performance: a systematic review using the SPAR-4-SLR protocol

“…A visual examination of Figure 7 makes the focus on housing market research apparent (Andre et al ., 2017; Marfatia et al ., 2022; Miles, 2009). Despite the plethora of uncertainty indicators available, most studies have adopted the EPU, which tracks the prevalence of keywords such as uncertainty and economy in each country's top newspapers (Fu et al ., 2021; Gholipour et al ., 2022; Ongan and Gocer, 2017; Su et al ., 2019). GFC and COVID-19 are also commonly occurring terms due to the reported adverse impacts of these disruptions on a global scale (Al-Thaqeb et al ., 2022; Cheung et al ., 2021).…”

The role of economic policy uncertainty in forecasting housing prices volatility in developed economies: evidence from a GARCH-MIDAS approach

“…The result shows a positive and significant relationship between the two variables in the short run. Su et al (2019) used the bootstrap rolling-window Granger causality test and showed that economic policy uncertainty affects house prices positively or negatively. Moreover, the house price volatility increases the economic policy uncertainty, whereas economic policy uncertainty reduces the house price volatility.…”