Causal Relationship between Asset Prices and Output in the United States: Evidence from the State-Level Panel Granger Causality Test

Emirmahmutoglu F., Balcilar M., Apergis N., Simo-Kengne B. D., Chang T., Gupta R.

REGIONAL STUDIES, vol.50, no.10, pp.1728-1741, 2016 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 50 Issue: 10
  • Publication Date: 2016
  • Doi Number: 10.1080/00343404.2015.1055462
  • Journal Name: REGIONAL STUDIES
  • Journal Indexes: Social Sciences Citation Index (SSCI)
  • Page Numbers: pp.1728-1741
  • Keywords: House prices, Stock prices, Output, Granger causality, HOUSE PRICES, FORECASTING INFLATION, FINANCIAL VARIABLES, INFERENCE, GROWTH
  • Ankara Haci Bayram Veli University Affiliated: No


This paper investigates the causal relationship between asset prices and output across US states using a bootstrap panel Granger causality approach which allows not only for heterogeneity and cross-sectional dependence to be accounted for but also interdependency between asset markets. Empirical results from a trivariate vector autoregression (VAR) comprising real house prices, real stock prices and real per capita personal income over 1975-2012 reveal the existence of a unidirectional causality running from both asset prices to output. This confirms the leading indicator property of asset prices for the real economy, while also substantiating the wealth and/or collateral transmission mechanism.