Rights statement: This is an Accepted Manuscript of an article published by Taylor & Francis in New Zealand Economic Papers on 29 Jan 2020, available online: https://www.tandfonline.com/doi/abs/10.1080/00779954.2020.1718185
Accepted author manuscript, 1.22 MB, PDF document
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - House Prices, (Un)Affordability and Systemic Risk
AU - Pavlidis, Efthymios
AU - Paya, Ivan
AU - Skouralis, Alexandros
N1 - This is an Accepted Manuscript of an article published by Taylor & Francis in New Zealand Economic Papers on 29 Jan 2020, available online: https://www.tandfonline.com/doi/abs/10.1080/00779954.2020.1718185
PY - 2021/3/31
Y1 - 2021/3/31
N2 - This is the first paper to examine the role of the real estate sector and housing unaffordability in the determination of systemic risk. We measure the systemic risk of the UK by employing the ΔCoVaR method developed by Adrian and Brunnermeier [(2016). CoVaR. American Economic Review, 106(7), 1705–1741] and we explore both its cross-sectional and time series behaviour. Regarding the former, we show that when the real estate sector is under distress the tail risk of the entire financial system increases significantly. With respect to the latter, the findings of our dynamic model suggest that sustainable house prices positively contribute to the stability of the financial sector; whilst house price exuberance and rapid increases in housing unaffordability amplify systemic risk. Finally, we examine the conjecture that the banking sector comprises a transmission channel from the housing market to systemic risk. Our empirical results are in line with this argument and highlight the key role of housing unaffordability.
AB - This is the first paper to examine the role of the real estate sector and housing unaffordability in the determination of systemic risk. We measure the systemic risk of the UK by employing the ΔCoVaR method developed by Adrian and Brunnermeier [(2016). CoVaR. American Economic Review, 106(7), 1705–1741] and we explore both its cross-sectional and time series behaviour. Regarding the former, we show that when the real estate sector is under distress the tail risk of the entire financial system increases significantly. With respect to the latter, the findings of our dynamic model suggest that sustainable house prices positively contribute to the stability of the financial sector; whilst house price exuberance and rapid increases in housing unaffordability amplify systemic risk. Finally, we examine the conjecture that the banking sector comprises a transmission channel from the housing market to systemic risk. Our empirical results are in line with this argument and highlight the key role of housing unaffordability.
KW - Affordability
KW - real estate sector
KW - systemic risk
U2 - 10.1080/00779954.2020.1718185
DO - 10.1080/00779954.2020.1718185
M3 - Journal article
VL - 55
SP - 105
EP - 123
JO - New Zealand Economic Papers
JF - New Zealand Economic Papers
IS - 1
ER -