Impact of the Economic Uncertainty Index on the Acceleration of Housing Price Growth and Changes in Housing Transaction Volume in Iran

Document Type : Research Paper

Authors

1 Ph.D. Candidate, Department of Economics, Al.C., Islamic Azad University, Aligudarz, Iran

2 Associate Professor, Department of Economics, Ar.C., Islamic Azad University, Arak, Iran

3 Assistant Professor, Department of Mathematics, Al.C., Islamic Azad University, Aligudarz, Iran

Abstract

This paper examines the complex and multifaceted impact of economic uncertainty on the acceleration of housing price growth and changes in transaction volumes, to analyze market milestones and instabilities.
First, an economic uncertainty index is constructed by averaging the standardized volatility of seven macroeconomic variables. Using this index, a random-effects panel data model is estimated for 30 provinces over the period from 2008 to 2023. Subsequently, for structural analysis, a stochastic dynamic general equilibrium (DSGE) model based on the optimization behavior of households and banks is calibrated using Bayesian methods.
The results indicate that economic uncertainty has a positive and significant effect on the acceleration of housing price growth, but an insignificant effect on the acceleration of changes in housing transaction volume. Structural analysis via the DSGE model provides a deep interpretation of these dual findings, revealing a “stagflationary divergence.” Price acceleration exhibits resilience due to the dominance of speculative demand (housing as a safe asset) over the initial precautionary behavior of consumer buyers. In contrast, transaction acceleration experiences a pronounced boom–bust cycle: an initial speculative surge is quickly followed by a sharp decline caused by affordability crises and credit contraction, explaining the negligible average effect.
This divergence suggests that in the Iranian economy, housing prices have become decoupled from fundamental market factors, necessitating dual-policy measures that aim to manage investment-driven demand and support consumer-driven demand simultaneously.

Keywords

Main Subjects

References

  1. Ahir, H., Bloom, N., & Furceri, D. (2018). Global uncertainty is rising, and that is a bad omen for growth. VOX‐EU.‏
  2. Ahir, H., Bloom, N., & Furceri, D. (2022). The world uncertainty index (No. w29763). National bureau of economic research.‏
  3. Al-Thaqeb, S. A., & Algharabali, B. G. (2019). Economic policy uncertainty: A literature review. The Journal of Economic Asymmetries, 20, e00133.‏
  4. Annicchiarico, B., Pelloni, A., & Valenti, F. (2016). Volatility and Growth with Recursive Preferences.‏
  5. Asadpour, A. A. (2019). The effect of inflation uncertainty and macroeconomic variables on housing prices in Iran. Economic Growth and Development Research, 10(37), 131–141 (in Persian).
  6. Annicchiarico, B., Pelloni, A., & Valenti, F. (2016). Volatility and Growth with Recursive Preferences.‏
  7. Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), 1593-1636.‏
  8. Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. The Quarterly Journal of Economics, 98(1), 85-106.
  9. Bielskis, K., & Lastauskas, P. (2024). The role of housing market and credit on household consumption dynamics: Evidence from the OECD countries. Journal of Economic Behavior & Organization, 228, 106741.
  10. Bogin, A. N., Doerner, W. M., & Larson, W. D. (2016). Local house price growth accelerations (No. 16-02). Federal Housing Finance Agency.‏
  11. Bogin, A. N., Doerner, W. M., & Larson, W. D. (2019). Local House Price Paths: Accelerations, Declines, and Recoveries. Journal of Real Estate Finance and Economics, 58(2), 201-222.
  12. Central Bank of Iran. (2003). Annual report. Central Bank of Iran.
  13. Chow, S. C., Cunado, J., Gupta, R., & Wong, W. K. (2018). Causal relationships between economic policy uncertainty and housing market returns in China and India: Evidence from linear and nonlinear panel and time series models. Studies in Nonlinear Dynamics & Econometrics, 22(2), 20160121.‏
  14. Christou, C., Gupta, R., & Hassapis, C. (2017). Does economic policy uncertainty forecast real housing returns in a panel of OECD countries? A Bayesian approach. The Quarterly Review of Economics and Finance, 65, 50-60.‏
  15. Dai, L., & Sheng, X. (2021). The impact of uncertainty on state-level housing markets of the United States: the role of social cohesion. Sustainability, 13(6), 3065.‏
  16. Di Quirico, R. (2023). Uncertainty, anxiety and the post-pandemic economic environment. Clinical Neuropsychiatry, 20(4), 227.‏
  17. Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton university press.‏
  18. European Commission. (2024). The cost of uncertainty – new estimates. European Commission.
  19. Farhang, A. A., Ranjbar-Fallah, M. R., & Mohammadpour, A. (2021). Examining the uncertainty of exchange rates and inflation on investment in construction companies in Iran. Economic Research and Policies, 29(100), 195–226 (in Persian).
  20. Fernández-Villaverde, J., Guerrón-Quintana, P., Kuester, K., & Rubio-Ramírez, J. (2015). Fiscal volatility shocks and economic activity. American Economic Review, 105(11), 3352-3384.
  21. Furceri, D., Loungani, P., Ostry, J. D., & Pizzuto, P. (2020). Will Covid-19 affect inequality? Evidence from past pandemics. Covid Econ (12): 138–157.‏
  22. Ghaderi, J. and Izady, B. (2016). Studying the Effects of Social and Economic Factors on the Housing Prices in Iran (1972-2013). Urban Economics, 1(1), 55-75 (in Persian).
  23. Ghodsi, M., & Fathollah-Nejad, A. (2020). The Geopolitical Roots of Iran’s Economic Crisis. Sada Feature, Carnegie Endowment for International Peace, 30.‏
  24. Gholizadeh, A. A., & Kamyab, B. (2010). The long-term relationship between the housing market and inflation in Iran. Journal of Economic Studies and Policies, 0(18), 51–68 (in Persian).
  25. Gholizadeh, A. A., & Samadipour, S. (2024). Analysis of behavioral and non-behavioral factors affecting housing prices and inflation in Iran. Economic Research (Sustainable Growth and Development), 24(3), 123–145 (in Persian).
  26. Glaeser, E. L., & Gyourko, J. (2018). The economic implications of housing supply. Journal of Economic Perspectives, 32(1), 3-30.
  27. Glaeser, E. L., Gyourko, J., & Saks, R. E. (2008). Urban growth and housing supply. Journal of Economic Geography, 6(1), 71-89.
  28. Hadavandi, E., Ghanbari, A., Mirjani, S. M., & Abbasian, S. (2011). An econometric panel data-based approach for housing price forecasting in Iran. International Journal of Housing Markets and Analysis, 4(1), 70–83
  29. Ivanova, A., Shmygel, A., & Lubchuk, I. (2021). The growth-at-risk (GaR) framework: implication for Ukraine (No. HEIDWP10-2021). Graduate Institute of International and Development Studies Working Paper.‏
  30. Jafari, A., Ezzatpanah, B., & Bigbabai, B. (2023). Spatial and social evaluation of factors affecting housing prices: A case study of Urmia city. Geographical Space Planning Journal, 12(4), 145–161 (in Persian).
  31. Jordà, Ò., Knoll, K., Kuvshinov, D., Schularick, M., & Taylor, A. M. (2019). The rate of return on everything, 1870–2015. The quarterly journal of economics, 134(3), 1225-1298.
  32. Jurado, K., Ludvigson, S. C., & Ng, S. (2015). Measuring uncertainty. American Economic Review, 105(3), 1177-1216.
  33. Kaplan, G., Mitman, K., & Violante, G. L. (2020). The housing boom and bust: Model meets evidence. Journal of Political Economy, 128(9), 3287-3345.
  34. Keijsers, B., & van Dijk, D. (2024). Does economic uncertainty predict real activity in real time?. International Journal of Forecasting, 41(2), 748-762.
  35. Keshtkaran, N., Behboodi, D., & Panahi, H. (2020). Asymmetric effects of monetary policy on Iran's housing market: A DSGE approach. Applied Economic Theories, 7(4), 195–218 (in Persian).
  36. Malek, H., Delangizan, S., & Almasi, M. (2020). Investigating the Effects of Economic Shocks with Housing Finance in a DSGE Model. Quarterly Journal of Economic Research and Policies, 28(94), 289–331.
  37. Mashayekhi, N., Sarlak, A., & Ghiasi, M. (2021). Examining the effect of the global economic policy uncertainty index on housing prices in Iran. Journal of Quantitative Economics (in Persian).
  38. Mozaffari, Z., & Ahmadzadeh, K. (2022). The impact of housing investment on Iran's economic growth: An application of the GMM time-series approach. Economic Research (Sustainable Growth and Development), 22(2), 245–270 (in Persian).
  39. MUTH, R. F. (1958). The demand for non-farm housing (Doctoral dissertation, The University of Chicago).‏
  40. Olsen, E. O. (1969). A competitive theory of the housing market. The American Economic Review, 59(4), 612-622.
  41. Pettinger, T. (2022). How the housing market affects the economy. Economics Help.
  42. Rabanal, M. P. (2018). An estimated DSGE model to analyze housing market policies in Hong Kong SAR. International Monetary Fund.‏
  43. Shabanpour, Z., Shokrgazar, A., & Jafari Mehrabadi, M. (2019). Examining factors affecting housing prices: A case study of Rasht city. Environmental Planning, 12(46), 63–82 (in Persian).
  44. (2023). Urbanization in Iran. Statista.
  45. Sun, X., & Tsang, K. P. (2014). Optimal interest rate rule in a DSGE model with housing market spillovers. Economics Letters, 125(1), 47–51.
  46. Talebloo, R., Mohammadi, T., & Pirdayeh, H. (2017). Analysis of spatial diffusion of housing price changes in Iranian provinces: A spatial econometric approach. Economic Research Journal, 17(66), 55–95 (in Persian).
  47. World Bank. (2023). World development report 2023: Migrants, refugees, and societies. World Bank.
  48. Xiang, G., Tang, J., & Yao, S. (2022). The Characteristics of the Housing Market and the Goal of Stable and Healthy Development in China’s Cities. Journal of risk and financial management, 15(10), 450.
  49. Zali, S., Pahlavani, P., & Bigdeli, B. (2023). Spatio-temporal analysis of factors affecting housing prices: A case study of Tehran’s Region 5. Scientific Journal of Land Use Planning, 15(1), 115–130 (in Persian).
Applied Theories of Economics
Volume 12, Issue 4 - Serial Number 47
December 2025
Pages 123-148

Files

Share

How to cite

Statistics