The role of housing activity: A case of major developed countries

Housing activity is an important indicator of general economic activity, and house price movements are an important variable in international financial markets. In this paper we utilise Vector Autoregressive (VAR) models to examine how the interrelationship between housing activity and general economic activity has evolved in four OECD countries. Our results provide support for the hypothesis that the relationship between housing activity and general economic activity has changed in many OECD countries, For Australia, however, no such evidence was found. These results suggest that caution needs to be exercised when using previous experience to forecast both housing cycles and general economic activity.