Journal
REGIONAL STUDIES
Volume 50, Issue 10, Pages 1728-1741Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/00343404.2015.1055462
Keywords
House prices; Stock prices; Output; Granger causality
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This paper investigates the causal relationship between asset prices and output across US states using a bootstrap panel Granger causality approach which allows not only for heterogeneity and cross-sectional dependence to be accounted for but also interdependency between asset markets. Empirical results from a trivariate vector autoregression (VAR) comprising real house prices, real stock prices and real per capita personal income over 1975-2012 reveal the existence of a unidirectional causality running from both asset prices to output. This confirms the leading indicator property of asset prices for the real economy, while also substantiating the wealth and/or collateral transmission mechanism.
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