Permanent and transitory dynamics in house prices and consumption: Some implications for the real effects of the financial crisis

In this paper a small-scale macroeconomic system is estimated in the framework of a common trends model, in order to explore the dynamic interactions between real house prices, consumption expen-diture and output in the US and major European economies. The results point to important di¤erences across countries, with long-run house price e¤ects on consumption only for France, Germany and the US. However, some interactions between house prices and consump-tion are detected in all countries at shorter horizons. Evidence of international comovements in the common trend component of house price dynamics is also found. This paper is part of a research project on Saving rates and house price dynamics in Europesupported by the Observatiore de lEpargne Européenne (OEE)