We analyze empirically the role played by energy inflation as a determinant of downward
corrections in house prices. Using a dataset for 18 OECD economies spanning the last four
decades, we identify periods of downward house price adjustment and estimate conditional
logit models to measure the effect of energy inflation on the probability of these house price
corrections after controlling for other relevant macroeconomic variables. Our results give
strong evidence that increases in energy price inflation raise the probability of such corrective
periods taking place. This phenomenon could be explained by various channels: through the
adverse effects of energy prices on economic activity and income reducing the demand for
housing; through the particular impact on construction and operation costs and their effects on
the supply and demand of housing; through the reaction of monetary policy on inflation
withdrawing liquidity and further reducing demand; through improving attractiveness of
commodity versus housing investment on asset markets; or through a lagging impact of
common factors on both variables, such as economic growth. Our results contribute to the
understanding of the pass-through of oil price shocks to financial markets and imply that energy
price inflation should serve as a leading indicator for the analysis of macro-financial risks. (authors' abstract)
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:4383 |
| Date | 03 1900 |
| Creators | Breitenfellner, Andreas, Crespo Cuaresma, Jesus, Mayer, Philipp |
| Publisher | Elsevier |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Article, PeerReviewed |
| Format | application/pdf |
| Relation | http://dx.doi.org/10.1016/j.eneco.2014.08.023, www.elsevier.com, http://epub.wu.ac.at/4383/ |
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