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IS THERE A STABLE RELATIONSHIP BETWEEN REAL INTEREST RATES AND

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Author(s): José Manuel SÁNCHEZ SANTOS | José Pablo ABEAL VÁZQUEZ

Journal: Annals of the Stefan cel Mare University of Suceava : Fascicle of the Faculty of Economics and Public Administration
ISSN 2066-575X

Volume: 11;
Issue: 2(14);
Start page: 46;
Date: 2011;
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Keywords: Housing price | monetary policy | interest rate | monetary union | cointegration | error correction model

ABSTRACT
This paper analyzes the relationship between real interest rates and housing prices in three European Unioncountries (France, Spain and the Netherlands) between 1999 and 2010. The main objective is to test whether there is astable long-run relationship between both variables, as well as whether there are differences across countries. In orderto do so, I use different real interest rates (short-term and long-term) and different housing price indices (nominal andreal), and apply cointegration techniques and propose an error correction model, following the two-stage methodologysuggested by Engle and Granger, in order to examine the different dynamics in the short and the long term. The mainconclusion is that the relationship between real interest rates and housing prices is weak, although there aredifferences across countries. This has some implications for the single monetary policy conducted by the EuropeanCentral Bank.
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