House prices, Economic Output, and Inflation Interactions in Iran

Many economic theories indicate that house price changes should have real effect on the economy and vice versa. This study investigates the existence of causality among house prices, economic growth, and inflation in Iran using the Toda and Yamamoto approach during the period 1990–2008. The results show that there is evidence of a significant multidirectional link between house prices, and the macroeconomic factors. The causality tests confirm that GDP and CPI Granger cause house prices, and feedback effects are observed for house prices and GDP. This paper finds no evidence of Granger causality of real house price changes to CPI.