The effects of real Estate uncertainty shocks on state-level economic dynamicsIn this paper, we analyze how uncertainty shocks in the real estate market affect the economy of different US states. Firstly, we construct a measure of real estate uncertainty for each state. Using this measure, we estimate a Bayesian Panel Vector Autoregressive model to obtain impulse response functions to real estate uncertainty shocks. We then examine which state characteristics can explain the variations in economic activity responses to such shocks. Our results show that real estate uncertainty shocks have adverse effects on economic activity, with varying intensities across states. We also show that the adverse impacts on income are larger in states with a high share of financial, construction, and manufacturing industries, as well as a large proportion of small banks. On the other hand, states that allocate more resources to welfare policies experience lower impacts.
Keywords:
Real estate uncertainty; Uncertainty shocks; Economic activity; PVAR model
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Note: The figure shows the composition of GDP by economic sector. The data is the sectorial average among the states that make up each region. Source: Authors’ elaboration.
Note: Small banks are defined as at or below the 90th percentile of the national distribution of bank size by assets. Source: Authors’ elaboration.
Note: The vacancy rate for rental properties is defined as the proportion of vacant properties among those available for rent. Source: Authors’ elaboration.
Note: The figure shows the regional average of state-level debt as a share of total expenditure. Source: Authors’ elaboration.
Note: The solid line represents the median of state-level real estate uncertainties, SREU, between the second quarter of 1995 and the last quarter of 2017. The dashed horizontal line indicates 1.65 standard deviations above the series average, representing periods of high uncertainty. Source: Authors’ elaboration.
Note: The map shows the median, for each state, of the State Real Estate Uncertainty - SREU between the second quarter of 1995 and the last quarter of 2017. Darker colors reflect higher levels of uncertainty. Source: Authors’ elaboration.
Note: The map depicts the cumulative responses of personal income per capita in each state to one standard deviation shock in state-level real estate uncertainty. Darker colors indicate more pronounced responses to the state-level real estate uncertainty shock. Source: Authors’ elaboration.
Note: The map displays the accumulated employment responses in each state to one standard deviation shock in state-level real estate uncertainty. Darker colors indicate more pronounced responses to the state- level real estate uncertainty shock. Source: Authors’ elaboration.
Note(s): The map shows the cumulative responses of the unemployment rate in each state to one standard deviation shock in state-level real estate uncertainty. Darker colors indicate more pronounced responses to the state-level real estate uncertainty shock. Source: Authors’ elaboration.
Note: The crossed line represents the median state real estate uncertainty (SREU), while the solid line represents national real estate uncertainty (NREU), created by 
Note: Impulse response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the median state-level responses to a state real estate uncertainty shock created by this study. The red dotted line represents the median state-level responses to a national real estate uncertainty shock created by 
Note(s): Impulse response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the median state-level responses to a state real estate uncertainty shock created by this study (baseline). The dotted line represents the median state-level responses to a national real estate uncertainty shock without a real estate price index. The dashed and dashed-dotted lines represent the 68% credibility interval. Responses are multiplied by 100 to depict the percentage variation. Source: Authors’ elaboration.
Note(s): The solid blue line represents impulse response functions to a one standard deviation shock in the state-level real estate uncertainty with recursive identification. The solid red line represents the impulse response functions to a one standard deviation shock in the state-level real estate uncertainty with signal restriction identification (baseline). Dashed lines represent the 68% credibility interval. Responses are multiplied by 100 to depict the percentage variation. Source: Authors’ elaboration.
Note(s): Impulse-response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the impulse-response functions of personal income per capita (PIPC), employment (EMP), and unemployment rate (UR) for Alabama (AL), Alaska (AK), Arizona (AZ), Arkansas (AR), California (CA), Colorado (CO), Connecticut (CT), Delaware (DE), District of Columbia (DC) and Florida (FL) to a one standard deviation uncertainty shock. The dashed lines represent the 68% credibility interval. Source: Authors’ elaboration.
Note(s): Impulse-response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the impulse-response functions of per capita personal income (PIPC), employment (EMP), and unemployment rate (UR) for Georgia (GA), Hawaii (HI), Idaho (ID), Illinois (IL), Indiana (IN), Iowa (IA), Kansas (KS), Kentucky (KY), Louisiana (LA) and Maine (ME) to a one standard deviation uncertainty shock. The dashed lines represent the 68% credibility interval. Source: Authors’ elaboration.
Note: Impulse-response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the impulse-response functions of per capita personal income (PIPC), employment (EMP), and unemployment rate (UR) for Maryland (MD), Massachusetts (MA), Michigan (MI), Minnesota (MN), Mississippi (MS), Missouri (MO), Montana (MT), Nebraska (NE), Nevada (NV) and New Hampshire (NH) to a one standard deviation uncertainty shock. The dashed lines represent the 68% credibility interval. Source: Authors’ elaboration.
Note(s): Impulse-response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the impulse-response functions of per capita personal income (PIPC), employment (EMP), and unemployment rate (UR) for New Jersey (NJ), New Mexico (NM), New York (NY), North Carolina (NC), North Dakota (ND), Ohio (OH), Oklahoma (OK), Oregon (OR), Pennsylvania (PA) and Rhode Island (RI) to a one standard deviation uncertainty shock. The dashed lines represent the 68% credibility interval. Source: Authors’ elaboration.
Note(s): Impulse-response functions to a one standard deviation shock in the real estate market uncertainty measure. The solid line represents the impulse-response functions of per capita personal income (PIPC), employment (EMP), and unemployment rate (UR) for South Carolina (SC), South Dakota (SD), Tennessee (TN), Texas (TX), Utah (UT), Vermont (VT), Virginia (VA), Washington (WA), West Virginia (WV), Wisconsin (WI), and Wyoming (WY) to a one standard deviation uncertainty shock. The dashed lines represent the 68% credibility interval. Source: Authors’ elaboration.
Note: State Real Estate Uncertainty - SREU in the states of Alabama (AL), Alaska (AK), Arizona (AZ), Arkansas (AR), California (CA), Colorado (CO), Connecticut (CT), Delaware (DE), District of Columbia (DC), Florida (FL), Georgia (GA), Hawaii (HI), Idaho (ID), Illinois (IL), Indiana (IN), Iowa (IA), Kansas (KS), Kentucky (KY), Louisiana (LA), Maine (ME), Maryland (MD), Massachusetts (MA), Michigan (MI), Minnesota (MN), and Mississippi (MS). Source: Authors’ elaboration.
Note: State Real Estate Uncertainty - SREU in the states of Missouri (MO), Montana (MT), Nebraska (NE), Nevada (NV), New Hampshire (NH), New Jersey (NJ), New Mexico (NM), New York (NY), North Carolina (NC), North Dakota (ND), Ohio (OH), Oklahoma (OK), Oregon (OR), Pennsylvania (PA), Rhode Island (RI), South Carolina (SC), South Dakota (SD), Tennessee (TN), Texas (TX), Utah (UT), Vermont (VT), Virginia (VA), Washington (WA), West Virginia (WV), Wisconsin (WI), and Wyoming (WY). Source: Authors’ elaboration.