Forecasting UK house prices: A time varying coefficient approach

Jane P. Brown, Haiyan Song, Alan McGillivray

Research output: Journal article publicationJournal articleAcademic researchpeer-review

56 Citations (Scopus)

Abstract

Previous studies of UK house prices, developed from the demand and supply ofhousing or from the asset market approach have been poor in terms of robustness and ex-post forecasting ability. The UK housing market has suffered a number of structural changes, particularly since the early 1980s with substantial house price increases, financial market deregulation and the removal of mortgage market constraints through competition. Consequently, models which assume that the underlying data-generating process is stable and apply constant parameter techniques tend to suffer in terms of parameter instability. This article uses the Time Varying Coefficient (TVC) methodology where the underlying data-generating process in the UK housing market is treated as unstable. The estimation results of the TVC regression of UK house prices is compared with those obtained from three alternative constant parameter regressions. Comparisons of forecasting performance suggest the TVC regression out-performs forecasts from an Error Correction Mechanism (ECM), Vector Autoregressive (VAR) and an Autoregressive Time Series regression.
Original languageEnglish
Pages (from-to)529-548
Number of pages20
JournalEconomic Modelling
Volume14
Issue number4
Publication statusPublished - 1 Oct 1997
Externally publishedYes

Keywords

  • Kalman filter
  • Time varying coefficient models
  • UK house prices

ASJC Scopus subject areas

  • Economics and Econometrics

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