Energy Inflation and House Price Corrections

Using a dataset for 18 OECD economies spanning the last four decades, we identify periods of downward house price adjustment and estimate conditional logit models to measure the effect of energy inflation on the probability of these house price corrections after controlling for other relevant macroeconomic variables. Our results give strong evidence that increases in energy price inflation raise the probability of such corrective periods taking place. We discuss various channels that could explain this phenomenon as well as the implication of our results to the analysis of macro-financial risks.