DO HOUSE PRICES IN TURKEY FOLLOW EURO AREA TRENDS?: REGIME SWITCHING APPROACH

Abstract

The purpose of this study is to make a comparative analysis on the house price trends of Turkey and Euro Area over the 2003-2016 period. Since the economic interactions between these regions have a substantial volume, any shocks or booms in a region might affect the other one. Within this scope, the study attempts to investigate the house price trends in these economies by applying separated Regime Switching Models. The findings firstly show that the low regime in Turkey corresponds to the 2008-2012 period while in the Euro Area it corresponds to the 2006-2013 period. Secondly, the impacts of the potential factors vary across regions. For Turkey, the interest rate has a negative significant impact on house prices during both regimes, while unemployment rate has a negative significant impact only in the high regime. For the Euro Area, both interest rate and unemployment rate have a statistically significant, negative impact on house prices. As for income level, it is observed that for both regimes in Turkey and the Euro Area, income level has a positive impact on house prices. The breakpoints suggest that the prior impacts of the global recession around 2008 firstly appear in Euro Area but firstly ends in Turkey.