Working Paper: CEPR ID: DP9786
Authors: Cristian Badarinza; Tarun Ramadorai
Abstract: Historical time-series data is short relative to the frequency of political and economic crises. This makes it difficult to use pure time-series methods to identify the impacts of safe haven demand on asset prices, in the face of confounding effects from a wide range of alternative drivers. We present a new method to identify safe-haven effects which relies on combining the cross-section of asset prices with time-series measures of economic and political risk. We employ this strategy on large databases of historical housing transactions in London, and show that economic and political risk in Southern Europe, China, the Middle East, Russia, and South Asia is an important factor in explaining the dynamics of London house prices over the past two decades.
Keywords: economic risk; hedonic pricing; house prices; London; political risk; safe haven
JEL Codes: C53; D80; E47; F21; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in political or economic uncertainty in Greece (F65) | Higher house prices in London areas with significant share of Greek-born residents (R21) |
| Increase in political uncertainty in China (D89) | Greater appreciation of house prices in London areas with higher average incomes (R21) |
| Increase in political uncertainty in the Middle East (F69) | Greater appreciation of house prices in London areas with higher average incomes (R21) |
| Increase in political uncertainty in Southern Europe (H69) | Higher house prices in London areas with lower average incomes (R31) |
| Increase in political uncertainty in South Asia (F52) | Higher house prices in London areas with lower average incomes (R31) |