Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180267
Authors: 
Kilian, Lutz
Zhou, Xiaoqing
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7005
Abstract: 
Shocks to the demand for housing that originate in one region may seem important only for that regional housing market. We provide evidence that such shocks can also affect housing markets in other regions. Our analysis focuses on the response of Canadian housing markets to oil price shocks. We document that, at the national level, real oil price shocks account for 11% of the variability in real house price growth over time. At the regional level, we find that unexpected increases in the real price of oil raise real house prices not only in oil-producing regions, but also in other regions. We develop a theoretical model of the propagation of real oil price shocks across regions that helps understand this finding. The model differentiates between oil-producing and non-oil-producing regions and incorporates multiple sectors, trade between provinces, government redistribution, and consumer spending on fuel. We empirically confirm the model prediction that oil price shocks are transmitted to housing markets in nonoil-producing regions by the government redistribution of oil revenue and by increased interprovincial trade.
Subjects: 
house price
regional heterogeneity
oil price
redistribution
resource boom
Canada
JEL: 
F43
Q33
Q43
R12
R31
Document Type: 
Working Paper

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