Asymmetric Effects of House Price Shocks on the Consumption of Urban Households in the Provinces of Iran: Panel VAR Approach

Document Type : مقالات پژوهشی

Authors

• marzieh dindar rostami
• Shams alah shirinbakhsh

Alzahra university

https://doi.org/10.22067/erd.v23i12.55626

Abstract

The purpose of this study is to investigate asymmetric effects of house prices shocks on urban household consumption in Iran during the period of 1385-1393. For this purpose, by estimating the two models, effects of house price shocks on household consumption have been studied in urban households and investigating asymmetric effects with using the approach of Panel Vector Auto Regression (Panel VAR). The results of this study suggest that the effect of changes in house price on household's consumption of urban is negative and significant in provinces of Iran during the period under study. Then, the effects of asymmetric shocks of house price have shown that the positive shocks have negative and significant effect and negative shocks have positive and significant effect on household consumption. Orthogonalized Impulse response functions (OIRF) suggest that the positive impact of price shocks on consumption is more effective than negative price shocks. Generally, urban households will change saving behavior in the facing the potential gains and losses of capital. The results indicate that the saving tendency and uncertainty has been increased in urban households during this period.
Methodology
Panel VAR is composed of traditional VAR, which endogenously defines all the variables in the pattern and panel data method, which imports unobservable factors in the pattern.
In this study, after examining the stationary of the pattern variables and determining the optimal lag, the stability is checked in the desired pattern. The results of the table and the study of statistics values show that the null hypothesis based on the lack of stationary of variables like consumption, housing price, positive and negative changes in housing price and urban household's income are rejected in all three tests, in the sense that all variables in the model are static.
In the case of the lag order of the tests, the minimum value in MBIC, MAIC, and MQIC standards is the first lag order. In both studied patterns, eigenvalues are inside the unit circle which represents the stability of the pattern.
In this study, the coefficients are estimated using panel vector autoregressive pattern and based on GMM method. Some New software called Love (2015) and Abrigo and STATA12 have been used to estimate the coefficients.
Results and Discussion
The effect of housing price shock on urban household's consumption, housing price, urban inflation and urban household's income are shown in diagram 1. As can be seen, the positive housing price shock as large as one standard deviation will cause negative consumption response and the negative response will reach its peak in the second year, then it will be gradually converged to its initial level. According to the theory, a demand shock in housing price will lead to increase in housing price through an initial increase in mortgage rates. Therefore, the increase in real prices of estate caused increased household wealth and thereby increased demand for the goods. The increased household consumption expenditure will lead to inflationary pressure.
According to the results of the analysis in this study, the proposed theory has been violated, which could be due to various factors, including uncertainty in housing price changes, assuming it as a temporary matter by households, increased precautionary savings and retirement savings in order to deal with disability and disease and increased liquidity constraints in the collateral role and increased housing price.
diagram 1: Orthogonalized Impulse Response Function: The effect of housing price shock on models variables.


The effects of impulse response functions of positive price shock (hpp) on consumption are a little more than negative price shock (hpn). After positive housing price shock, urban household's consumption will be decreased in provinces and it will reach its lowest value in the first period. Then the behavior will be fluctuating and finally, it will be converged to its first route after 10 periods. In other words, by increasing the housing price, homeowners feel getting richer because of increased possible benefits of their wealth, and they will increase their consumption. Tenants and those who want to buy a house, feel getting poorer and therefore consumption reduction and increased savings will occur. According to diagram 2, the effect of reducing consumption will be higher than the effect of increasing consumption; therefore, the positive housing price shock will decrease the consumption.
diagram 2: Orthogonalized Impulse Response Function: The asymmetric effect of housing price shock



Conclusion
This study aimed to investigate the asymmetric effects of housing prices on urban household's consumption in provinces of Iran during 1393-1385. For this purpose, the effects of housing price shock on urban household's consumption are studied using two patterns then its asymmetric effects are examined using Panel vector autoregressive approach (Panel VAR).
According to the literature about the discussed issue, theoretically, the effect of increased housing price on total consumption expenditure looks ambiguous. In most studies, this relationship has been positive. The results of the study obtained from the estimation of the pattern and examination of orthogonalized Impulse response function show that the effect of housing price changes on urban household's consumption during the studied period is negative and significant in the provinces of Iran. In addition, the asymmetric effects of housing price shock have a negative and significant effect on positive housing price shock and also have a positive effect on negative housing price shock. Orthogonalized Impulse response function indicates that the effect of positive price shock on consumption is more effective and higher than negative price shock. Therefore, the asymmetric effect of housing shock on urban household's consumption has been approved.

Keywords

• house prices shocks
• Asymmetric effect
• Panel VAR
• consumption
• provinces of Iran

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