Common business and housing market cyles in the euro area from a multivariate decomposition

Laurent Ferrara, Siem Jan Koopman

Research output: Chapter in Book / Report / Conference proceedingChapterAcademicpeer-review


The 2007 sub-prime crisis in the United States, prolonged by a severe economic recession spread over many countries around the world, has led many researchers to focus on the recent fluctuations in housing prices and their relationships with macroeconomics and monetary policies. The existence of common housing cycles among the countries of the euro zone could lead the European Central Bank to integrate more specifically the evolution of such asset prices in its assessment. In this paper, we implement a multivariate unobserved component model on housing market variables in order to assess the common euro area housing cycle and to evaluate its relationship with the economic cycle. Among the general class of multivariate unobserved component models, we implement the band-pass filter based on the trend plus cycle decomposition model and we allow the existence of two cycles of different periods. The dataset consists of gross domestic product and real house prices series for four main euro area countries (Germany, France, Italy and Spain). Empirical results show a strong relationship for business cycles in France, Italy and Spain. Moreover, French and Spanish house prices cycles appear to be strongly related, while the German one possesses its own dynamics. Finally, we find that GDP and house prices cycles are related in the medium-term for fluctuations between 4 and 8 years, while the housing market contributes to the long-termeconomic growth only in Spain and Germany

Original languageEnglish
Title of host publicationHousing Markets in Europe
Subtitle of host publicationA Macroeconomic Perspective
PublisherSpringer Berlin / Heidelberg
Number of pages24
ISBN (Print)9783642153396
Publication statusPublished - 1 Dec 2010


  • Business cycles
  • Euro area
  • House prices
  • Unobserved components model

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