Title: Dynamic linkages among financial stress, house prices and residential investment in Greece

Authors: Dimitris Anastasiou; Panayotis Kapopoulos

Addresses: Department of Accounting and Finance, Athens University of Economics and Business, Patission 76, 10434, Athens, Greece; Economic Research Division, Alpha Bank, Athens, Greece ' University of Piraeus, Piraeus, Greece; Economic Research Division, Alpha Bank, Sofokleous 11, 10559, Athens, Greece

Abstract: We examine the relationship between financial instability and real estate price fluctuation in Greece, whose experience during the last two decades makes it an ideal laboratory. Employing a VAR and a Bayesian VAR model, we demonstrate the ability of this measure to explain the phases of the housing market (in terms of both residential prices and investment). We find that an adverse shock in financial stability has prolonged adverse effects in the real estate market, with our findings offering a rigorous interpretation of how the 'perfect financial storm' hit the Greek market during the previous decade. Our findings also suggest that residential prices are more sensitive to changes in financial stress conditions than residential investment.

Keywords: house prices; residential investment; financial stability; uncertainty; Greek economy; Greece.

DOI: 10.1504/IJBAAF.2023.129334

International Journal of Banking, Accounting and Finance, 2023 Vol.13 No.3, pp.321 - 340

Received: 30 Oct 2021
Accepted: 26 Sep 2022
Published online: 06 Mar 2023 *