The Time-varying Impact of Uncertainty Shocks on the Comovement of Regional Housing Prices of the United Kingdom

Oguzhan Cepni, Hardik A. Marfatiab, Rangan Gupta

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The housing markets in districts across the United Kingdom (UK) co-move over time. We use the dynamic factor model to decompose the co-movement in house prices of the smallest possible geographical unit into national, regional, and idiosyncratic factors. Using the Bayesian time-varying parameter VAR (TVP-VAR) model, we study the dynamic impact of uncertainty shocks on the synchronization in housing markets. We find that the estimated national factor accurately tracks the overall housing market cycles in the UK and explains nearly all the variations in East, SouthEast, and SouthWest districts. Furthermore, the results from TVP-VAR indicate that the estimated response of the national factor to uncertainty shocks is negative. However, the magnitude of the effect is more pronounced and persists longer in the case of housing price uncertainty shocks compared to overall economic uncertainty. Overall, our results suggest that uncertainty about house prices is a primary driver of the national factor.
Original languageEnglish
Number of pages33
Publication statusPublished - 2021


  • Uncertainty shocks
  • Macroeconomic shocks
  • Housing prices
  • Regional markets
  • The United Kingdom

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