Investigating the dynamic causality between real effective exchange rate and house price in Oecd 18 countires

Abstract

Housing is a necessity for human life, and housing prices are directly relatedtothe daily lives of citizens. With the vigorous development of international trade, theimpact of exchange rates has become more volatile and contributing an effect tothehouse price. On the other hand, rising housing prices may have a wealth effect onconsumption and imports, leading to increased demand for foreign exchange. Inthisstudy, the bootstrap quantile Granger causality model is used to test the causalitybetween real housing prices and real effective exchange rates in the 18OECDcountries in the extreme markets. In addition, the dynamic conditional correlation(DCC)-copula-GARCH to investigate the dynamic correlation betweenreal housing prices and real effective exchange rates of 18 countries on both normal andextreme markets. The results show that there is a causality between house prices andexchange rates in most countries, and there is a dynamic, positive correlation betweenhouse prices and exchange rates in both normal and extreme markets.