TITLE:
Stock Prices, Home Prices, and Private Consumption in the US: Some Robust Bilateral Causality Tests
AUTHORS:
Hassan Shirvani, Bahman Mirshab, Natalya Delcoure
KEYWORDS:
Private Consumption; Causality; Stock Prices; Home Prices
JOURNAL NAME:
Modern Economy,
Vol.3 No.2,
March
28,
2012
ABSTRACT: We perform robust bilateral Granger causality tests for the US stock prices, home prices, and private consumption. The robust test procedures involve the use of recently developed time series analysis of non-stationary data with possible structural breaks. We find the underlying data to be generally non-stationary and non-cointegrated. The empirical results indicate the presence of bilateral causality between stock prices and home prices and between stock prices and consumer spending. The results show unilateral causality from home prices to consumer spending. Our findings support the reinforcing effects of stock and home price movements on private consumption, as well as the feedback effect of consumer spending on stock prices.