The Impact of Exchange Rate Volatility on the Housing Price Index in Iran: A GMM Time Series Approach

Document Type : Research Paper

Authors

1 Assistant Prof., Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

2 Ph.D., Department of Economics, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran.

Abstract

Objective
Both on micro and macro scales, the exchange rate and its dynamics play a pivotal role as influential variables in the economy. They can affect most economic, social, and cultural variables through various channels and change their behaviors. Given the importance of the exchange rate as a key variable in the Iranian economy, extensive studies have been conducted on the exchange rate and the associated concerns regarding exchange rate volatility. The rate affects many of the government's economic policies. In addition, since housing costs constitute the main household expenses in Iran, problems and limitations in providing housing can have a significant impact on the spread of social dissatisfaction. The purpose of this study is to investigate the effect of exchange rate instability on the housing price index in Iran. Therefore, analyzing the relationship between the exchange rate market and the housing market can help policymakers and economic decision-makers adopt appropriate policies in the foreign exchange market and housing sector.
 
Methods
In this study, the GARCH method was initially used to estimate the volatility of the exchange rate. Next, to investigate the effect of exchange rate instability on the housing price index from 1991 to 2020, the GMM time-series method was employed. Due to the dynamic nature of the model in this study and the need to establish conditions for generalized moment estimators, the use of this method seems appropriate. The GMM method is used for linear time-series models to ensure the conditions of moment estimators and incidental properties.
 
 
 
Results
The results showed that the volatility of the exchange rate has a negative and significant effect on housing prices. Also, it was found that the interruption of the housing price index, oil revenues, inflation rate, liquidity, and urbanization all exert a notable and positive influence on housing prices. Additionally, the study's findings revealed a significant and adverse effect of variables such as interest rate, gold market return, and stock market return on housing prices within Iran's economy. The results of the tests used demonstrated that the estimation model is in a suitable condition in terms of statistical indicators.
 
Conclusion
Exchange rate volatility is of the parameters affecting housing prices. Accordingly, this study concludes that exchange rate volatility harms the housing price index in Iran. It is recommended that the central bank adopt appropriate currency policies to reduce volatility in the currency market and its effect on parallel markets, including the housing market. The results of estimating the coefficients of control variables are consistent and in line with the theoretical and empirical literature. Variables such as inflation rate, liquidity, and urbanization have a positive and significant effect on the housing price index. With an increase in liquidity, the housing price index in the Iranian economy increases, indicating that expansionary monetary policies have significant effects on the housing market in Iran.

Keywords

Main Subjects

References

 
Abbasi Nejad, H. & Yari, H. (2008). The effect of oil shocks on housing prices in Iran, Economic Research, 9(1), 59-77.
Agnello, L., Castro, V., Hammoudeh, S. & Sousa, R. M. (2017). Spillovers from the oil sector to the housing market cycle. Energy Economics, 61, 209-220.
Asadpour, A.A. (2019). The Effects of Uncertainty in Inflation and Macroeconomic Variables on Housing Prices in Iran. Economic Growth and Development Research, 10(37), 125-136. (in Persian)
Bahmani-Oskooee, M. & Wu, T. P. (2018). Housing prices and real effective exchange rates in 18 OECD countries: a bootstrap multivariate panel Granger causality. Economic Analysis and Policy, 60, 119-126.‏
Beck, T., Levine, R. & Loayza, N. (2000). Finance and the Sources of Growth. Journal of financial economics, 58(1), 261-300.
Box, G. E. P. & Jenkins, G. M. (1970). Time Series Analysis: Forecasting and Control. San Francisco: Holden-Day.
Cellmer, R. (2020). Spatial Analysis of Housing Prices and Market Activity with the Geographically Weighted Regression, International Journal Geo – Information, 9, 380.
Cohen, V. & Karpaviciute, L. (2017). The analysis of the determinants of housing prices. Independent journal of management & production, 8(1), 49-63.‏
Diala, A., Kalu, I. Igwe-Kalu, A. (2017). Effects of Exchange Rate Volatility on Low Income Residential Real Estate Investment Returns in Nigeria. Research Journal of Finance and Accounting, 8(6), 8-15.
Enders, W. (2004). Applied Econometric Time Series. University of Alabama, Willey Press.
Eyvazloo, R., Eslamibidgoli, S., & Khorsandi Ashtiani, A. (2019). Comparing Repeated Sales Indices (BMN and Case-Shiller) in Real Estate Markets in City of Tehran. Financial Research Journal, 21(3), 348-363. doi: 10.22059/frj.2019.271058.1006775 (in Persian)
Gao, L., Kim, H. & Saba, R. (2014). How do oil price shocks affect consumer prices? Energy Economics, 45, 313-323.
Ghaderi, J. & Izady, B. (2016). Studying the Effects of Social and Economic Factors on the Housing Prices in Iran (1972-2013). Urban Economics, 1(1), 55-75. (in Persian)
Gholizadeh, A. A. & Mollavali, T. (2012). The Effects of Liquidity on Housing Price Fluctuations in Oil-Producing Countries VS. other Countries. Economic Research and Policies, 20 (63), 83-104. (in Persian)
Gholizadeh, A. A. & Noroozonejad, M. (2019). Dynamics of Housing Prices and Economic Fluctuations in Iran with the Approach of Dynamic Stochastic General Equilibrium (DSGE). Journal of Economic Modeling Research, 9(36), 37-74.‏ (in Persian)
Gholizadeh, A. A. (2018). Housing price theory in Iran (in plain language), (2nd edition), Tehran. (in Persian)
Greene, W. (2011). Fixed effects vector decomposition: a magical solution to the problem of time-invariant variables in fixed effects models? Political Analysis, 19(2), 135-146.
Greenwood, J. & Hercowitz, Z. (1991). The allocation of capital and time over the business cycle. Journal of political Economy, 99(6), 1188-1214.
Greiner, A., Semmler, W. & Gong, G. (2016). The forces of economic growth: a time series perspective. Princeton University Press.
Hadadmoghadam, M. & Davody, P. (2021). Investigating the Effect of Exchange Rate Positive Shock on Employment in Housing Sector (Case Study: Mashhad City). Journal of Iranian Economic Issues, 8(1), 91-121. (in Persian)
Heydari, H. & Rashidi, M. (2019). Estimating Exchange Rate Pass-Through on Producer Prices in Main Sectors of Iranian Economy. Journal of Economic Modeling Research, 9(35), 167-200.‏ (in Persian)
Hufner, F.P. & Schroder, M. (2002). Exchange Rate Passthrough to Consumer Prices: A European Perspective. Center for European Economic Research Discussion Paper, pp. 02-20.
Iacoviello, M. & Neri, S. (2010). Housing market spillovers: evidence from an estimated DSGE model. American Economic Journal: Macroeconomics, 2(2), 125-164.
Jahangiri, K. & Hoseini Ebrahimabad, S. A. (2017). The Study of Monetary Policy, Exchange Rate and Gold Effects on the Stock Market in Iran Using MS-VAR-EGARCH Model. Financial Research Journal, 19(3), 389-414. (in Persian)
Killins, R. N., Egly, P. V. & Escobari, D. (2017). The impact of oil shocks on the housing market: Evidence from Canada and US. Journal of Economics and Business, 93, 15-28.
Latif, N. S. A., Rizwan, K. M., Rozzani, N. & Saleh, S. K. (2020). Factors affecting housing prices in Malaysia: a literature review. International Journal of Asian Social Science, 10(1), 63-67.‏
Maleki, B. (2015). Analysis of the housing market in Iran, Industrial Management Organization Publications, Tehran. (in Persian)
Ohno, S. & Shimizu, J. (2015). Do exchange rate arrangements and capital controls influence international capital flows and housing prices in Asia?. Journal of Asian Economics, 39, 1-18.‏
Raee, R., Mohmadi, S., & Saranj, A. (2014). Tehran Stock Exchange dynamics in a Markov regime switching EGARCH-in-mean model. Financial Research Journal, 16(1), 77-98. doi: 10.22059/jfr.2014.51841 (in Persian)
Yang, L. & Zhiqiang, H. (2012). On correlation between RMB exchange rate and real estate price based on financial engineering. Systems Engineering Procedia, 3, 146-152.
Zheng, Y. & Osmer, E. (2019). Housing price dynamics: The impact of stock market sentiment and the spillover effect. The Quarterly Review of Economics and Finance, 80, 854-867.
Financial Research Journal
Volume 25, Issue 3
2023
Pages 433-452

Files

Share

How to cite

Statistics