3rd International E-Conference on Engineering, Technology and Management - ICETM 2020
Author(s) : Dirar Elmahi Elobaid Ahmed
The causality link between house prices and the rate of unemployment presents an attractive area for research as the two variables are key macroeconomic indicators for any economy. This paper intends to investigate how the house price index (HPI) is varying under the impact of Unemployment (UNEMP) in Saudi Arabia. Quarterly secondary data for a period of six years extending from 2014Q1 â€“ 2019Q4 was compiled from the publications of Saudi Arabian Monetary Agency (SAMA). The paper employs the VAR model. Granger causality tests, variance decomposition, and impulse response functions are also used. The results reveal that UNEMP has an insignificant negative relationship on housing prices in KSA. Results also reveals a two-way Granger causality between (UNEMP) and (HPI). Variance decomposition exhibits that (UNEMP) is taking a low explanatory power over the variations of house price index both in the short and long run. The results have deep implications for future studies of other macroeconomic factors affecting housing prices. Originality/value: There are a limited number of studies that have investigated the causality link between house prices and unemployment. Given the increased importance of labor market variables, it is important to better understand the causal linkages between house prices and unemployment.