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Housing demand shocks, foreign labour inflows and consumption

Author

Listed:
  • William Gatt
  • Germano Ruisi

    (Central Bank of Malta)

Abstract
In this paper we propose a SVAR identification strategy to disentangle two housing demand shocks and their ensuing effect on consumption. This builds on the literature studying the role of the collateral and housing wealth effects on household behaviour. A mix of zero and sign restrictions allows us to disentangle domestic and foreign housing demand shocks, which capture different motivations for owning or using real estate by residents and foreign workers respectively. Using Maltese data over the period 2000Q1–2019Q4 we find that both housing demand shocks generate an increase in consumption, in line with the theoretical predictions from micro founded models with financial frictions. While a domestic housing demand shock drives consumption via both the collateral and housing wealth channels, a foreign housing demand shock operates mainly via the latter. Moreover, these shocks account for about 40% of the fluctuations in house prices and consumption in the long run. We show that from a historical perspective they match well with the dynamics of foreign worker growth and a selection of events that are associated with activity in the housing market.

Suggested Citation

  • William Gatt & Germano Ruisi, 2020. "Housing demand shocks, foreign labour inflows and consumption," CBM Working Papers WP/07/2020, Central Bank of Malta.
    • Handle: RePEc:mlt:wpaper:0720
    as

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    File URL: https://www.centralbankmalta.org/site/excel/working-papers/WP-07-2020.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. William Gatt, 2022. "MEDSEA-FIN: an estimated DSGE model with housing and financial frictions for Malta," CBM Working Papers WP/05/2022, Central Bank of Malta.
    2. William Gatt & Germano Ruisi, 2022. "The spillover of euro area shocks to the Maltese economy," CBM Working Papers WP/03/2022, Central Bank of Malta.

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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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