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Estimating U.S. Housing Price Network Connectedness: Evidence from Dynamic Elastic Net, Lasso, and Ridge Vector Autoregressive Models

Author

Listed:
  • David Gabauer

    (Software Competence Center Hagenberg)

  • Rangan Gupta

    (University of Pretoria)

  • Hardik A. Marfatia

    (Northeastern Illinois University)

  • Stephen M. Miller

    (University of Nevada, Las Vegas)

Abstract
This paper investigates the dynamic connectedness of random shocks to housing prices between the 50 U.S. states and the District of Columbia. The paper implements a standard vector autoregressive (VAR) model as well as three VAR models with shrinkage effects – Elastic Net, Lasso, and Ridge VAR models. The transmission of random shocks on a regional basis flows from Southern states to Western states to Midwestern states to Northeastern states. Since VAR models generally confront parameter values between zero and one, the Elastic Net and Lasso VAR models perform the best since the penalty involves the absolute value rather than he squared value as in the Ridge VAR model. Our results have important implications for investors and policymakers.

Suggested Citation

  • David Gabauer & Rangan Gupta & Hardik A. Marfatia & Stephen M. Miller, 2020. "Estimating U.S. Housing Price Network Connectedness: Evidence from Dynamic Elastic Net, Lasso, and Ridge Vector Autoregressive Models," Working papers 2020-08, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2020-08
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    More about this item

    Keywords

    Dynamic Connectedness; Elastic Net VAR; Lasso VAR; Ridge VAR; U.S. Housing;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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