House Prices and Economic Growth

  • Norman Miller
  • Liang PengEmail author
  • Michael Sklarz


Using quarterly data for all 379 metropolitan statistic areas (MSAs) in the U.S. from 1980:1 to 2008:2, this paper empirically studies the effect of house prices on local Gross Metropolitan Product (GMP). We compare the effects of predictable and unpredictable house price changes, which we use to capture the collateral and wealth effects of house prices respectively. We further analyze the relationship between the effects and household borrowing constraints, as well as the temporal pattern of the effects. Our analysis provides the following findings. First, house price changes have significant effects on GMP growth, and the effect of predictable changes (the collateral effect) is about three times stronger than the effect of unpredictable changes (the wealth effect). Second, the persistent component of predictable changes has a stronger collateral effect than the novel component. Third, when households are more financially constrained, the collateral effect is stronger, the wealth effect is weaker, and the total effect remains unchanged. Finally, the effects last for eight quarters, and peak on the fourth quarter after house price changes take place.


Economic growth House prices Wealth effect Collateral effect Common correlated effects estimators Long horizon predictability 

JEL classification

E23 E24 R11 



We thank the editor C. F. Sirmans and two anonymous referees for very constructive comments. We also thank Shaun Bond, Grace Wong, and other participants of 2006 AREUEA annual and mid-year conferences for insightful comments. All errors are ours.


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.School of Business AdministrationUniversity of San DiegoSan DiegoUSA
  2. 2.Leeds School of BusinessUniversity of Colorado at BoulderBoulderUSA
  3. 3.Collateral AnalyticsHonoluluUSA

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