Boom-Bust Cycles in Iran's Housing Prices: An Ms-Var Approach

The economy of Iran has witnessed a couple of booms and busts in housing prices over the period of 1981(1)-2014(4). Since the fluctuations in housing prices affect household wealth, and consequentially, total consumption, saving and even banking, it is of crucial importance to analyze the impact of such fluctuations on real economy. This study, utilizing the MSIAH -VARX model, examines booms and busts in housing prices in Iran over the aforementioned period. This approach offers the possibility to identify different regimes in Iran’s housing market. Moreover, the probability of staying in one regime as well as that of transition from one regime to another could be estimated. The findings indicate that during the aforementioned period, there are two regimes of boom and bust in housing prices. Furthermore, the probability of staying in a bust regime is greater than that of a boom regime.