Pitfalls in the cointegration analysis of housing prices with the macroeconomy: Evidence from OECD countries

• DOI: 10.1016/j.jhe.2021.101748
• Publication Date: 2021-01-14T14:23:16Z
• Authors: Ghislain Nono Gueye
• Keywords: Spurious relationship; Independence

Abstract We use data from 20 OECD countries to show strong evidence for the existence of cross-section dependence in international housing prices. This structural relationship is important to consider when studying housing prices panels. First, we implement first-generation tests (tests which assume cross-section independence) and find no evidence for stationarity or cointegration. However, we find strong evidence for stationarity and cointegration when we employ second-generation tests (tests which assume cross-section dependence). The spurious results of the former tests may lead researchers on housing prices dynamics to inaccurate conclusions with the potential to ill-inform policy-makers.