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The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?

Tse, C, Rodgers, T and Niklewski, J 2014, 'The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?' , Economic Modelling, 37 , pp. 518-530.

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Abstract

This paper investigates the impact of the 2007 financial crisis on the relationship between real mortgage interest rates and real house prices. It applies a dynamic conditional correlation based methodology that uses fractionally differenced data along with controls for structural breaks and non-interest-rate related factors that influence house prices. The key finding made is that the financial crisis had a long-term structural impact on the monetary transmission relationship. For example, we find that the mean conditional correlation between house prices in England and Wales and the three-year fixed mortgage rate rose by 6.6 percentage points. Similarly, the mean correlation between prices and the standard variable mortgage rate increased 6.4 percentage points to 54%. These findings suggest to us that interest-rate-based monetary policy still has an important role to play in the housing market.

Item Type: Article
Schools: Schools > Salford Business School
Journal or Publication Title: Economic Modelling
Publisher: Elsevier
Refereed: Yes
ISSN: 0264-9993
Related URLs:
Depositing User: S Rafiq
Date Deposited: 07 May 2014 11:08
Last Modified: 08 Nov 2015 23:04
URI: http://usir.salford.ac.uk/id/eprint/31767

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