The propagation of regional shocks in housing markets: evidence from oil price shocks in Canada

Shocks to the demand for housing that originate in one region may seem important only for that regional housing market. We provide evidence that such shocks can also affect housing markets in other regions. Our analysis 
Shocks to the demand for housing that originate in one region may seem important only for that regional housing market. We provide evidence that such shocks can also affect housing markets in other regions. Our analysis focuses on the response of Canadian housing markets to oil price shocks. Oil price shocks constitute an important source of exogenous regional variation in income in Canada because oil production is highly geographically concentrated. We document that, at the national level, real oil price shocks account for 11% of the variability in real house price growth over time. At the regional level, we find that unexpected increases in the real price of oil raise housing demand and real house prices not only in oil-producing regions, but also in other regions. We develop a theoretical model of the propagation of real oil price shocks across regions that helps understand this finding. The model differentiates between oil-producing and non-oil-producing regions and incorporates multiple sectors, trade between provinces, government redistribution, and consumer spending on fuel. We empirically confirm the model prediction that oil price shocks are propagated to housing markets in non-oil-producing regions by the government redistribution of oil revenue and by increased interprovincial trade.
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Metadaten
Author:Lutz Kilian, Xiaoqing Zhou
URN:urn:nbn:de:hebis:30:3-474472
URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274347
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 606
Series (Serial Number):CFS working paper series (606)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2018
Date of first Publication:2018/02/10
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2018/11/06
Tag:Canada; house price; oil price; redistribution; regional heterogeneity; regional propagation; resource boom
Issue:This version: October 22, 2018
Pagenumber:56
HeBIS PPN:439736447
Institutes:Wirtschaftswissenschaften
Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:F43 Economic Growth of Open Economies
Q33 Resource Booms
Q43 Energy and the Macroeconomy
R12 Size and Spatial Distributions of Regional Economic Activity
R31 Housing Supply and Markets
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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