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Monetary
Nexus between monetary policy policy
uncertainty and real estate uncertainty

market volatility in COVID-19

peak and recovery period
Haobo Zou Received 3 October 2023
Revised 26 October 2023
School of Economics and Management, Southwest Jiaotong University, Accepted 28 October 2023
Chengdu, China
Mansoora Ahmed
Business School, Suzhou University, Suzhou, China
Syed Ali Raza
Department of Business Administration, IQRA University, Karachi, Pakistan and
Adnan Kassar School of Business, Lebanese American University,
Beirut, Lebanon, and
Rija Anwar
Department of Business Administration, IQRA University, Karachi, Pakistan

Abstract
Purpose – Monetary policy has major impacts on macroeconomic indicators of the country. Accordingly,
uncertainty regarding monetary policy shifts can cause challenges and risks for businesses, financial markets
and investors. Thus, the purpose of this study is to investigate how real estate market volatility responds to
monetary policy uncertainty.
Design/methodology/approach – The GARCH-MIDAS model is applied in this study to investigate the
nexus between monetary policy uncertainty and real estate market volatility. This model was fundamentally
instituted to accommodate low-frequency variables.
Findings – The results of this study reveal that increased monetary policy uncertainty highly affects
the volatility in real estate market during the peak period of COVID-19 as compared to full sample
period and COVID-19 recovery period; hence, a significant decline is evident in real estate market
volatility during crisis.
Originality/value – This study is particularly focused on peak and recovery period of COVID-19 considering
the geographical region of Greece, Japan and the USA. This study provides a complete perspective on the nexus
between monetary policy uncertainty and real estate markets volatility in three distinct economic views.
Keywords Monetary policy uncertainty, Real estate market, Volatility, GARCH-MIDAS model,
COVID-19 peak period, COVID-19 recovery period
Paper type Research paper

This work was supported by the National Natural Science Foundation of China under Grant No.
International Journal of Housing
NSFC 72172129; Sichuan Wine Development Center under Grant No. CJZ21-03, CJY21-07; Fujian Markets and Analysis
Natural Science Foundation under Grant No. 2022J01380; China National Social Science under Grant © Emerald Publishing Limited
1753-8270
No. 20BSH103. DOI 10.1108/IJHMA-10-2023-0130
IJHMA 1. Introduction
COVID-19, a global pandemic, was initially documented in the month of December 2019 in
the Wuhan City of China (Liu et al., 2020). COVID-19 paralyzed the whole world because
lockdowns and air travel restrictions were imposed in several countries to control the
expansion of the pandemic, consequently restraining economic activities (Milcheva, 2022;
Balemi et al., 2021). In line with the OECD, the gross domestic product (GDP) of the world
declined by approximately 4.16% in the year 2020. Specifically, the GDP of Greece was

9.00% for the year 2020, a 10.89% decrease from 2019, the USA’s GDP dropped by 3.7%,
while Japan’s GDP rate also decreased to
4.3% in the year 2021; However, in preceding
year 2019, the Japan’s GDP rate was
0.4 (World Bank Indicator). COVID-19 affected
several sectors including the extreme challenges experienced by the real estate business
containing the commercial property markets and the residential real estate market. Nicola
et al. (2020) also established that COVID-19 adversely influenced the real estate markets in
different countries. Balemi et al. (2021) reveal a decline in the sales of both residential and
commercial properties, as some people experienced challenges in paying their mortgages
and some left their apartments situated in urban zones because of COVID-19. Additionally,
the COVID-19 impacts on real estate yields and real estate price volatility varies across
countries, which is dependent on the country’s financial market attributes and prior
experiences of market participation regarding health and other disastrous crises (Milcheva,
2022; Tomal, 2021). A National Association of Realtors reported that the US median house
rate for different houses was $309,800 in 2020. This manifests a great upsurge from the
preceding year 2019, demonstrating a 9.2% growth, but it varied on the basis of the area,
property type and other elements. Additionally, the demand for home sales in 2020 reached
5.64 million, highlighting 5.6% growth from the preceding year [1]. City dwellers sought
capacious properties in suburban and rural areas because of higher risk of being affected by
the virus in densely populated urban cities (Li and Kao, 2022; Ramani and Bloom, 2021; Liu
and Su, 2021; Li and Zhang, 2021). Urban areas faced challenges as demand for condos and
apartments decreased because of over-densely populated locations, while the commercial
real estate sector faced significant hurdles because a large number of retail and office
properties were vacant and not rented out. Commercial real estate sectors were severely
affected as a result of the lockdown and faced the highest uncertainty for retail and hotel
properties. The World Tourism Barometer reported a 65% decline in arrivals of
globetrotters for the first semi-year of 2020 (UNWTO, 2020). The decline in the percentage of
international tourism and business travel caused a decline in hotel occupancy rates and
frequent closures of hotels (Hoesli and Malle, 2022). Findings highlight that pandemic also
had extreme effects on retail incomes, as in-store shops were closed because of lockdown
which increased the rate of online retailing.
The Bank of Greece quantified that 18% of property transactions in Greece dropped in
2020. Also, the real estate market prices were volatile; for example, inflation-adjusted housing
price was 7.07% (fourth quarter, 2019), declined to 5.31% (fourth quarter, 2020), inclined to
5.66% (fourth quarter, 2021) and again declined to
7.07% (fourth quarter, 2020) [2]. Athens
(the capital of Greece) and other urban zones observe a low demand for apartments because of
remote work developments; hence, an apparent trend could be observed toward rural or sub-
urban properties. Athens University of Economics and Business validates that 8.6% of vacant
properties exist for rent in Athens, signifying people’s preferences for urban living. Despite all
these challenges, real estate market shows progress in the recovery period of COVID-19.
According to Japan Real Estate Institute data, property dealings in Tokyo diminished by
around 25% in 2020 as compared to 2021. The COVID-19 effects on commercial real estate
witnessed empty offices mounting in prime business regions. The Mitsubishi UFJ Research
and Consulting report unraveled that housing demand in suburban zones increased (especially Monetary
near Tokyo), causing an 11.1% price increase for newly built houses in the Tokyo metropolitan policy
zone.
Globally, governments made distinctive policies to combat the adverse impact of the
uncertainty
novel virus on the housing market (Kholodilin, 2020). Usually, monetary policy significantly
influences housing prices through interest rates (Nguyen and Le, 2023). As per the Gordon
growth model, interest rate and housing prices are negatively correlated with each other.
Expansionary monetary policy reduces the interest rate which ultimately escalates the real
estate’s demand. In contrast, the contractionary monetary policy increases the interest rate
which declines the demand for real estate (Hou et al., 2022). According to Lu et al. (2023a,
2023b), higher monetary policy uncertainty (MPU) can either positively or negatively
influence housing prices. Outcomes highlighted dual channels through which MPU
positively influenced housing rates. First channel is related to real option hypothesis
presented by Bernanke (1983) which illustrates that uncertainty will surge the value of
reserve and the onset of profitable housing rates. Second channel is related to hypotheses of
risk aversion and risk premium developed by P
astor and Veronesi (2013) that elucidate
stocks to be more volatile during policy uncertainty and interconnected with poor economic
states. Lu et al. (2023a, 2023b) also stated that higher MPU plummets housing rates via
supply and demand for houses. Similarly, Fu and Luo (2021) infer that increasing MPU
declines the leverage ratio of Chinese banks which attributes to the negative demand shock.
Moreover, bank loan scarcity declines households’ revenue and upsurge protective saving.
In terms of supply, Caballero (1991) reveals that the returns to scale, competition level and
uneven adjustment of costs can mutually recognize whether uncertainty increases the
investment or declines it. Therefore, an escalation in MPU decreases the demand or
increases the supply of residential property which ultimately declines its rates.
Concerning the monetary policy and real estate market, there are merely a few studies
that focused on MPU and real estate market volatility (Lu et al., 2023a, 2023b; Wang et al.,
2020). Numerous other studies have covered different aspects such as conventional
monetary policy and unconventional monetary policy relation with real estate market
(Huber and Punzi, 2020; Gupta and Marfatia, 2018; Nguyen and Le, 2023; Rosenberg, 2019),
asymmetric relation of monetary policy with real estate market (Medina et al., 2015; Torres
and Restrepo, 2016; Zhang and Pan, 2021). Moreover, the majority of the studies have
focused on Chinese real estate market as a prime consideration because it has been facing a
crisis for many years owing to the Evergrande crisis, high debt level and government
regulation. Concurrently, numerous researchers used conventional econometric frameworks,
while several studies have used distinctive models of vector autoregressive (VAR) to inspect
the monetary policy link with real estate market. For instance, time-varying VAR model
(Caraiani et al., 2021); VAR model (Umar et al., 2019); panel VAR framework (Singh and
Nadkarni, 2020); Quantile Structural VAR framework (Caraiani et al., 2022); transition vector
autoregression model (Zhang and Pan, 2021); and factor-augmented VAR (Fischer et al.,
2021), while other studies have used the Markov switching model (Simo-Kengne et al., 2013;
Nneji et al., 2013; Torres and Restrepo, 2016) and the Dynamic Stochastic General
Equilibrium (DSGE) model (Tan et al., 2022; Deng et al., 2023).
Consistent with the sound knowledge of authors, pertinent literature has not yet
investigated the nexus between MPU and real estate market volatility in COVID-19 peak
period and its recovery period considering the geographical region of Greece, Japan and the
USA. The selection of these countries relies on the availability of MPU data. This study
provides a complete perspective on the nexus between MPU and real estate markets in three
distinct economic views.
IJHMA The other contribution is the novelty of the econometrics model, as this research has used
GARCH MIDAS model for analysis. GARCH-MIDAS model was proposed by Engle et al. (2013);
this model was fundamentally instituted to seize comprehensive data from high-frequency
series, along with accommodating low-frequency variables and integrating long-term
constituents into the model (Raza et al., 2023a, 2023b). GARCH MIDAS model was also used by
other researchers; for instance, Zhou et al. (2020) adopted GARCH MIDAS model to inspect the
uncertain economic policy effects over exchange rate volatility in China. Liu et al. (2021) assessed
an impact of uncertain economic policy on carbon futures price volatility via GARCH MIDAS
model in the European Union. Yu and Huang (2021) examined the predictability power of
uncertain economic policy on Chinese stocks volatility by using the same model. Raza et al.
(2023a) studied the influence of uncertain global economic policy on precious metal rate
volatility. Similarly, Raza et al. (2023b) conducted another study to evaluate the financial
regulatory policy uncertainty on cryptocurrencies’ volatility through application of GARCH
MIDAS model. Fang et al. (2018) used the similar model to determine the economic policy
uncertainty effects over housing price volatility in G7 countries. Precisely, this model can attain
better outcomes in comparison with the univariate approach by applying monthly data of MPU.
It also exhibits an inclusive econometric model by declining the risk of information and data loss
during the process of evaluation.
The findings of this research provide valuable insights to policymakers, investors, real estate
market participants and other researchers. Understanding the link between MPU and real estate
market volatility during conditions like COVID-19 can lead to the conceptualization of policies
intended to stabilize these markets and reduce potential risks. The study’s findings will assist
investors and real estate market participants to attain an in-depth and useful insight of how
MPU may influence their investment decisions. Findings will also assist them in making
informed decisions and coping with risks more efficiently. Finally, financial institutions and
businesses can also obtain insights regarding risk management strategies in real estate
investments that will assist them to accommodate varying economic states and policy
environments. Furthermore, the study incorporates knowledge into the pertinent literature by
expanding the knowledge related to MPU and real estate market volatility during the crisis.
Outcomes reveal that MPU significantly predicts real estate market volatility. In addition,
the real estate market volatility is highly affected by MPU during COVID-19 peak period,
evident the decline in real estate market volatility with increasing MPU during a crisis.
The rest of the sections are arranged as: Section 2 elucidates a review of existing literature
regarding different monetary policy dynamics and its link with real estate market. Section 3
describes methodology containing variables description along with the GARCH MIDAS model
elucidation. Section 4 includes data analysis and discussion, while Section 5 comprises
conclusion, practical implications and future recommendations on the basis of this study.

2. Literature review
Current literature includes the real estate markets’ responses to monetary policy using
distinctive models. For instance, Nneji et al. (2013) aimed to investigate monetary policy
effects over real estate market dynamics in the USA using the Markov switching model. The
study identified that real estate market is sensitive toward economic shifts. Similarly, Simo-
Kengne et al. (2013) applied the Markov switching model to inspect the monetary policy
impacts on South African real estate market. Results disclosed that the contractionary
monetary policy caused a decrease in housing prices.
Few scholars have concentrated their attention on asymmetric relation between
monetary policy and real estate market prices. Medina et al. (2015) evaluated an asymmetric
impact of monetary policy over housing rates focusing developing countries. By applying
deviations of new classical growth model, the study inferred a nonlinear relationship Monetary
between real output and housing market. Additionally, Torres and Restrepo (2016) examine policy
the asymmetric relation of monetary policy with dynamic growth of Colombian real estate
rates by using Markov Switching model. The study concluded that contractionary monetary
uncertainty
policy shock declines real estate market to a greater degree during a highly volatile period.
Zhang and Pan (2021) inspected the asymmetric effect of monetary policy and real output
shock on Chinese real estate market. The study used a Smooth Transition Vector
Autoregression model and inferred that expansionary monetary policy shocks positively
influence real estate market in relation to the diverse phases of business cycle. Marfatia et al.
(2017) evaluated the influence of time-varying monetary policy and macroeconomic news
over stock returns of global Real Estate Investment Trusts (REIT) by using Time-Varying
Model. The results established that global REIT is significantly influenced by monetary
policy and macroeconomic news across countries and time.
Other studies have considered conventional and non-conventional monetary policies.
Conventional monetary policy includes interest rate adjustments, meeting bank reserves
and open market actions, while unconventional monetary policy reflects quantitative
assistance, collateral changes, forward supervision and negative interest rates. Huber and
Punzi (2020) highlighted an unconventional monetary policy relation with a housing market
in the USA, Japan, the UK and the Europe region by applying the time-varying parameter
VAR framework. It was determined that unconditional monetary policy has significantly
reduced the impact of financial crisis aftermaths on housing market. Gupta and Marfatia
(2018) study the impact of unconventional monetary policy shock over REIT returns in the
USA by using qualitative vector autoregression. The results found quantitative easing has
the sturdiest and most positive impacts on the REIT returns in a short period. In terms of
COVID-19 pandemic, Nguyen and Le (2023) used the local projection method to inspect the
dynamic effects of government policy rate and COVID-19 pandemic on real house prices
considering South Africa, Brazil, Thailand, China and Turkey. The findings revealed that
house prices increased with unconventional and conventional monetary policy. Rosenberg
(2019) examined the unconventional and conventional forms of monetary policy’s effect over
housing prices in Scandinavian lands. The studies used the Bayesian SVAR model, and
results reveal positive influence of expansionary policy rate shock and balance sheet policy
rate shock over housing rates. Additionally, balance sheet policy rate shock greatly
influences housing rates as compared to expansionary monetary policy rates.
Analysis of pertinent literature reveals that the DSGE model was used for analyzing the
monetary policy association with real estate market. Tan et al. (2022) applied the DSGE model
to determine the monetary policy effects on housing rates prevailing in China. It was uncovered
that contractionary monetary policies and the expectations of the public are significant factors
that affect housing prices in China. Deng et al. (2023) investigated the efficiency of distinctive
policies (a portfolio of policies) in the regulation of house rates in the long term using DSGE
model. Study found that the application of any portfolio of policy may effectively reduce
housing price fluctuation and alleviate social welfare loss.
The VAR approach was also applied for investigation. For example, Caraiani et al. (2021)
studied monetary policy impacts on REIT bubbles in the USA via time-varying VAR
models. It was revealed that contractionary monetary policy increases the bubble factor in
REIT in the USA. Umar et al. (2019) investigated a monetary policy impact over housing
prices in the geographical region of Pakistan. By using VAR model, it was publicized that
the monetary policy substantially influenced the housing prices in Pakistan. Singh and
Nadkarni (2020) used panel VAR framework to identify the effect of bank credit and
monetary policy on asset rates including housing and stock prices. The results found that
IJHMA contractionary monetary policy steadily reduced the stock prices than housing prices
because higher interest rates may provide costlier leverage. Caraiani et al. (2021) used a
Quantile Structural VAR framework to investigate the effect of monetary policy shocks over
real housing price growth in the USA. Results reveal that contractionary monetary policy
declines the housing price growth when market behavior is optimistic rather than negative,
especially under unconventional monetary policy. Fischer et al. (2021) inspected monetary
policy response to housing rates in the USA via factor-augmented VAR. Findings identified
that policy responses are heterogeneous and significantly linked with domestic regulatory
settings and housing supply elasticity.
Different other models were also applied to investigate monetary policy impact and real
estate market. For instance, Ahmed et al. (2020) examined the expansionary monetary policy
on Italian real estate markets through Dynamic Financial Computable General Equilibrium
model with Financial Social Accounting Matrix; findings identified that monetary policy
positively influences the real estate output, pricing and value-added. Guo et al. (2020)
identified influence of housing prices on transmission of monetary policy via developing a
portfolio model. Results establish that growth or uncertainty of house prices will alleviate
the substitution effect produced by monetary policy. Buch et al. (2022) assessed the impact
of increased competition among banks on macroeconomic dynamics and monetary policy
transmission using panel local projections. It is identified that monetary policy influences
economic activity, consumer lending and housing prices, as it became more powerful after
the deregulation of interstate banking. Li et al. (2022) examined the monetary policy impacts
on corporate financing; in addition, it also compared contractionary monetary policy
influence on commercial credit funding and bank loans for manufacturing and real estate
companies. The study also explored the land purchasing actions of usual real estate firms in
diverse monetary policies and established that contractionary monetary policy rate has no
influence on real estate firms.
Some studies determined the housing market fluctuation in the framework of Gordon
growth model. Crosby et al. (2016) stated that it is difficult to investigate how real estate
prices are determined, how investors act, reckon the performance and make decisions
regarding bank lending. These are the concerns because of pricing model applied in real
estate which is belonged to other financial markets and perhaps not work sound for real
estate sector. So, in the study, the pricing model was modified and expanded to better justify
the difficulties of the real estate market. Liu et al. (2017) used the dynamic Gordon growth
model to examine the factors effecting housing prices in major cities of China. The study
found that rational bubbles have a more significant direct influence over housing prices as
compared to the expected returns and rent growth. According to Garriga et al. (2019), in the
USA, lower interest rates increased the housing prices up to 80% before 2007. But after
2007, the strict lending conditions diminished the house price by approximately 30%.
Similarly, Nguyen and Le (2023) inferred that Gordon growth model indicates an adverse
link of housing prices with interest rates. For instance, the lower rate of interest significantly
increases the housing prices.
Furthermore, some studies have analyzed a connection of uncertain monetary policy
with real estate market. Wang et al. (2020) evaluated an effect of different macroeconomic
factors on housing rate volatility during distinctive regimes of policy uncertainty. Through
application of the generalized impulse response function and logistic smooth transition VAR
model, findings suggest macroeconomic development contributes to increased housing
prices and policy uncertainty amplifies housing price growth. Additionally, Lu et al. (2023a,
2023b) studied a relationship of MPU with housing rates in China by integrating core-
periphery city network structures and time-varying features. It was found that impact of Monetary
MPU on housing rates is deviating across different cities. policy
There is another strand of literature that cover how economic policies uncertainty
(including monetary policy uncertainty) and real estate market influence the economic
uncertainty
indicators or were affected by the economic indicators during COVID-19. For instance, Choi
(2020) studied the effects of COVID-19 economic policy uncertainty on the USA industrial
economy by using wavelet coherence analysis. The findings unravel that COVID-19
economic policy uncertainty has affected the sector volatility more as compared to global
financial crisis for all sectors. In addition, it is noteworthy that during COVID-19 economic
policy uncertainty caused volatility in all sectors, whereas volatilities in some sectors raised
economic policy uncertainty during the global financial crisis. Dai and Peng (2022) examined
the effects of economic policy uncertainty on various markets using a time-varying
parameter VAR framework. Findings from this study are in three folds. First, certain sectors
such as industry, optional consumption, finance and public utility perform an important
function in the spillover effect. Second, the trade and fiscal policy uncertainties have greater
contribution toward spillover effects as compared to monetary and exchange rate policy
uncertainties. Third, during the period of COVID-19, oil spillovers declined severely and had
significant effect on the stock market volatility. Wang et al. (2022) used VAR model along
functional shocks to examine the effects of both traditional and nontraditional monetary
policy decisions over the Real Estate Investment Trusts market in the USA. The findings
indicate that traditional monetary policy shocks connect to economic theories, but
nontraditional policy shocks do not. Liang et al. (2023) investigated the dynamic asymmetric
transmission of risk between monetary policy uncertainty and financial stress using the
traditional Granger causality test and time-varying test. The causality was not found
between monetary policy uncertainty and financial stress; however, asymmetric causality is
evident between them. In addition, time-varying test illustrated that link of financial stress
with monetary policy uncertainty can affect through key events, particularly the financial
crisis of 2009, the dot-com bubble and the COVID-19 pandemic. Other studies investigated
the response of China monetary policy and fiscal policy uncertainty to worldwide oil price
volatility covering COVID period (Jiang and Cheng, 2021), COVID-19 spillover effect over
monetary policy transmission (Wang et al., 2023), the COVID-19 global systemic shock to
evaluate the risk and return association in the USA and Asian Countries’ real estate market
(Milcheva, 2022), impact of COVID-19 on the US commercial real estate (Chong and Phillips,
2022) and volatility in house market during COVID-19 (Wang, 2022).
After reviewing the relevant literature, it is identified that the link between monetary
policy and real estate market was examined in different dynamics, contexts and via different
conventional models. Additionally, COVID-19 impacts on the relationship of MPU and real
estate market with different economic indicators was also investigated. However, there is a
lacuna in the existing study that nexus between MPU and real estate market volatility in the
context of COVID-19 pandemic in Greece, Japan and the USA has not been studied yet.
Therefore, this study is particularly focused on MPU and real estate market volatility in
three different time periods such as the COVID-19 peak period, the COVID-19 recovery
period and the full sample using the GARCH MIDAS model.

3. Methodology
3.1 Data description and descriptive statistics
In this study, the monthly data of MPU and daily data of REIT are used to identify the influence
of MPU on volatility of real estate market at time of COVID-19 pandemic by using GARCH-
MIDAS Model. The data for MPU is garnered from Economic Policy Uncertainty [3] and real
IJHMA estate market data is extracted from Datastream. Greece, Japan and the USA are considered
countries of this study, selected on the basis of data availability of MPU. This study covers the
time span ranges from January 01, 2020 to February 28, 2023. The analysis is performed by
considering the COVID-19 peak period (January 01, 2020–December 31, 2020), the COVID-19
Recovery Period (January 01, 2021–February 28, 2023) and the full sample (January 01, 2020–
February 28, 2023). Figures 1 and 2 display the time series plot of MPU and real estate market.
Descriptive statistics of the return series and outcomes of unit root test are displayed
in Table 1 which manifests the descriptive statistics into three phases. In the full
sample, the mean value of MPU demonstrates the highest average return (0.28502) for
Greece which ranges from
0.62800 to 4.36467. Similarly, a mean value of RES also
indicates the highest average return (0.00022) for Greece which ranges from
0.06148
to 0.06856. The COVID-19 peak sample and the COVID-19 recovery sample exhibit the
same results that Greece’s MPU and RES average return are greater than other
considered countries. The standard deviation results signify the highest fluctuation in
the return series of MPU-Greece as compared to MPU-Japan and MPU-USA for all three
phases. However, the standard deviation of RES reveals that Japan possesses the
highest fluctuation in the return series of RES, followed by the USA and Greece during
the COVID-19 peak and recovery period. However, the highest fluctuation return series
of RES is experienced by the USA, followed by Japan and Greece in the full sample
period.
The skewness values of MPU-Greece, MPU-Japan and MPU-USA are greater than 1,
thus highlighting highly and positively skewed distribution in all phases except MPU-
USA in the COVID-19 recovery period. The RES results are not similar for all three
phases. RES-USA and RES-Japan data series represent highly negatively skewed
distribution in the full sample phase and COVID-19 peak, respectively. The RES data
series of all considered countries are approximately symmetric in the COVID-19
recovery period. Furthermore, the kurtosis values in all phases are greater than 3,
indicating leptokurtic distribution which implies the data series have a greater
probability of severe events than a normal distribution. Additionally, null hypothesis of
the Jarque-Bera (J-B) Test of Normality is denied and shows a non-normal distribution
in the data series. Finally, ADF test infers that the data series are stationary.

3.2 GARCH-MIDAS model

A GARCH-MIDAS framework is selected because of data availability for variables of
interest along assorted frequencies. This framework is used to examine the predictability of
MPU data for real estate market volatility. It prevents the issue of information loss that
emerges from data aggregation or data dis-aggregation. A GARCH-MIDAS model along
with conditional variances is multiplicatively decomposed into high- and low-frequency
constituents (Engle et al., 2013). It is described in equations 1 to 4, which encompasses a
constant conditional mean and conditional variance, by way of:
p
ri;t ¼ m þ tt  h i;t  «i;t; 8 i ¼ 1; . . . ; Nt (1)

ð ri
1;t
mÞ
2
hi;t ¼ ð1
a
bÞ þ a þ bhi
1;l (2)
t i

In the above equations, ri,t ¼ ln (Resi, t)
ln (Resi-1, t) symbolizes a return series of real estate
prices, where Resi, t covers REIT on ith day of month t; Nt signifies the total days in month t; m
 Monetary
policy
uncertainty

Figure 1.
Time series plot of
real estate markets

represents unconditional mean of REIT returns; hi,t designate the short run component, while ti
denotes the long run constituents of conditional variance of equation (1), which follows prior
assumption of GARCH(1,1) procedure. In equation (2), the sign of a is used for ARCH term and
b exhibits GARCH term, and it was expected that a > 0, b  0 and a þ b < 1:
IJHMA

Figure 2.
Time series plot of
monetary policy
uncertainty
Items Mean Maximum Minimum SD Skewness Kurtosis J-B ADF test
Monetary
policy
Full sample uncertainty
MPU-Greece 0.28502 4.36467
0.62800 1.12037 2.33946 8.10450 73.920***
12.225***
MPU-Japan 0.11837 2.11588
0.55396 0.57068 1.89622 7.00392 46.888***
8.644***
MPU-USA 0.02098 0.80480
0.26442 0.21564 1.55632 6.09598 29.713***
7.347***
RES-Greece 0.00022 0.06856
0.06148 0.00942 0.07887 14.64059 4,653.136***
16.987***
RES-Japan
0.00006 0.11456
0.11039 0.01374
0.10068 23.18509 13,990.092***
19.604***
RES-USA 0.00010 0.08848
0.17708 0.01781
1.16399 19.27300 9,277.901***
15.088***
COVID-19 peak sample
MPU-Greece 0.31121 4.36467
0.61865 1.40639 2.44233 7.63858 20.797***
4.689***
MPU-Japan 0.12239 2.11588
0.45170 0.71197 2.18491 6.85019 15.546***
8.373***
MPU-USA 0.03234 0.80480
0.26442 0.30546 1.57713 4.73714 5.943*
3.651*
RES-Greece 0.00034 0.06856
0.05538 0.01222 0.20663 10.89751 680.138
15.498***
RES-Japan 0.00012 0.08848
0.17708 0.02560
1.26240 13.58566 1,287.936
10.907***
RES-USA
0.00047 0.11456
0.11039 0.02064 0.00326 14.08165 1,335.482
10.948***
COVID-19 recovery sample
MPU-Greece 0.29405 3.71346
0.62800 1.02338 1.98199 6.60249 29.886***
10.722***
MPU-Japan 0.12606 1.83913
0.55396 0.52431 1.41506 5.59662 15.366***
8.146***
MPU-USA 0.01383 0.43929
0.25702 0.17505 0.86749 3.21304 16.182***
6.705***
RES-Greece 0.00016 0.04448
0.06148 0.00781
0.19568 15.26716 3,527.399***
15.195***
RES-Japan 0.00009 0.07348
0.04846 0.01271 0.07035 5.64298 164.037***
14.792***
RES-USA 0.00014 0.03251
0.04957 0.00892
0.27779 5.16303 116.787***
12.652*** Table 1.
Descriptive statistics
Notes: J-B ¼ Jarque-Bera test of Normality and ADF ¼ augmented Dickey and Fuller (1979) test of
stationary; * denotes th rejection of null hypothesis at the 10%. *, *** denotes the rejection of null of return series and
hypothesis at the 1 and 10% respectively results of unit root
Source: Authors’ own creation test

ðrwÞ ðrwÞ ðrwÞ

X
K
ðrwÞ
ti ¼ mi þ ui fk ðv1 ; v2 ÞXi k (3)
k¼1

 v1
1  v2
1
k=ð K þ 1Þ  1
k=ð K þ 1Þ
fk ðv1 ; v2 Þ ¼ Xk  v
1  v
1 (4)
j¼1
j=ð K þ 1Þ 1  1
j=ð K þ 1Þ 2

«i;t j Ui¼1;t  N ð0; 1Þ (5)

In the above equations 3 to 5, m represents long-run constant; u denotes the slope coefficient
(sum of weighted rolling window exogenous variable) which specifies predictability power
of monthly MPU for everyday REIT returns. fk(v1, v2) denotes beta polynomial weighing
structure,1 with fk(v1, v2)  0, k ¼ 1, . . ., K and adding up to unity for recognition of model;
Xi
k epitomizes as a predictor variable (MPU), while superscription “rw” demonstrates
application of rolling window framework; and random shock «i,t restricted on Ui ¼ 1,t that
directs the data set which is accessible at I
1 day of month t possesses normal distribution.
Additionally, to test the MPU influence on the return volatility of REIT of Greece, Japan and
the USA (which fundamentally engage the in-sample predictability), the out-of-sample forecast
performance of GARCH-MIDAS-based predictive model is also examined because in-sample
predictability may not certainly decode into enhanced out-of-sample forecasts (Rapach and Zhou,
2013; Campbell, 2008). At this point, the relative root mean square error (RMSE) (which is
IJHMA formulated as RMSEu/RMSEr, where RMSEu signifies the unrestricted MPU-based model while
RMSEr equals to restricted standard model) and dual variations of GARCH-MIDAS framework
are assessed: one variant is designated for MPU predictor (it would be practically defined as
GARCH-MIDAS-X) and second variant omits predictor series. Therefore, a relative RMSE value
<1 is considered which implies that the MPU-based model is more relevant than standard model,
whereas value >1 suggests standard model is more relevant than MPU-based model. Multiple
out-of-sample (h ¼ 12, h ¼ 24 and h ¼ 48) forecast horizons are measured, and rolling window
approach is used to attain the forecasts.

4. Findings and discussion

This section of the study contains estimations relied upon the GARCH-MIDAS model for
nexus between MPU and volatility of real estate market during the period of COVID-19
pandemic and COVID-19 recovery period. Results are presented in threefold. First, Table 2
exhibits the predictability of real estate market volatility with MPU in Greece, Japan and the
USA. Three distinctive sample periods are considered including the full sample, the COVID-
19 peak sample and COVID-19 recovery sample. Subsequently, Table 3 represents the
parameter stability check results. After that, RMSE is used to investigate in-sample and out-
of-sample forecasts and compare the outcomes with a historical average forecast. The RMSE
result is presented in Table 4.

4.1 Predictability of real estate market volatility with monetary policy uncertainty
There are two objectives of finding the predictability of real estate market volatility with
MPU for Greece, Japan and the USA. First, it manifests volatility of real estate market with
MPU because of COVID-19 pandemic which has not been examined in three big economies.
Second is to investigate the in-sample and out-of-sample predictive influence of COVID-19 in
real estate market with MPU which is vital for policy-making, strategy development, crucial
economic and financial decisions and making investment decisions. Table 2 refers to
parameter estimations of a predictive model for Greece, Japan and the USA in three different
sample periods, that is, full sample, COVID-19 peak sample and COVID-19 recovery sample
period. The parameters of the model comprise the unconditional mean for real estate market
return with MPU (m), the coefficient of ARCH (m), the coefficient of GARCH (b), the
coefficient of slope (u), adjusted beta polynomial weight (w) and long-run constant term (m).
The outcomes indicate that all parameters of the model are statistically significant. Total of
ARCH and GARCH is below unity except for the USA in full sample period. Hence, the
effects of shocks over real estate market volatility of Greece and Japan are temporary.
However, the total of ARCH and GARCH is equal to unity for the USA, the real estate
market volatility with MPU is persistent and continuous in the USA; thus, mean-reverting
volatility is high and persistent in the full sample. Volatility persistence in real estate market
is because of two causes. One key cause is MPU, and the other is the high response of real
estate market to COVID-19 pandemic and its recovery duration. Results confirm that the
shock to real estate market might be sustained over a longer period but not everlasting.
Adjusted beta polynomial weights are significant and >1, indicating higher weights are
allocated to instant previous observations rather than those observations that are far back in
time. Considering the full sample period, the influence of MPU on volatility of real estate
market for Greece, Japan and the USA is recognized by the statistically significant slope
coefficient, which specifies that real estate market volatility is adversely affected by MPU.
This demonstrates that a higher rate of MPU lowers real estate market volatility. The
finding is corroborating with the study of Fan et al. (2022) and Zou et al. (2023) which infer
that there is significant relation exist between economic policy uncertainty and real estate
Countries m a b u w m

Full sample
Greece 0.00038** [0.00016] 0.09693*** [0.00512] 0.85521*** [0.09524]
0.02594*** [0.00595] 1.08557*** [0.35952] 0.00012*** [0.00001]
Japan 0.00027* [0.00016] 0.06122** [0.02570] 0.93128*** [0.04570]
0.01505*** [0.00456] 2.53554** [1.03595] 0.00008*** [0.00001]
The USA 0.00053* [0.00029] 0.05414*** [0.01436] 0.94443*** [0.01499]
0.0554*** [0.00290] 1.75468*** [0.46725] 0.00054*** [0.00017]
COVID-19 peak sample
Greece 0.00041 [0.00045] 0.04370*** [0.01261] 0.94859*** [0.01497]
0.03447** [0.00367] 3.23140*** [0.56673] 0.00017*** [0.00005]
Japan 0.00052** [0.00022] 0.10477*** [0.00184] 0.88710*** [0.04215]
0.02607*** [0.00188] 1.51014*** [0.37089] 0.00061*** [0.00007]
The USA 0.00081*** [0.00017] 0.03577*** [0.00149] 0.94256*** [0.09128]
0.07064*** [0.00941] 2.08103*** [0.11728] 0.00015*** [0.00006]
COVID-19 recovery sample
Greece 0.00032* [0.00011] 0.06418*** [0.00492] 0.91566*** [0.06172]
0.02913** [0.01415] 2.07217*** [0.35619] 0.00012*** [0.00004]
Japan 0.00043** [0.00019] 0.08556*** [0.01684] 0.90521*** [0.06852]
0.02388*** [0.00862] 1.91468*** [0.48220] 0.00019*** [0.00006]
The USA 0.00079** [0.00039] 0.07824*** [0.02190] 0.90966*** [0.05392]
0.06129*** [0.00913] 1.83566*** [0.21762] 0.00050*** [0.00010]

Notes: m – unconditional mean of returns of Green, Clean and Sustainable Financial Markets, a – ARCH term, b – GARCH term, u – slope coefficient, w – the
adjusted beta polynomial weight and m – long run constant term. The figures in square brackets are the standard errors of the parameter estimates, while the ***,
** and * indicate statistical significance at 1, 5 and 10%, respectively
Source: Authors’ own creation

monetary policy
policy

uncertainty
volatility with
Table 2.
Monetary

estate market
Predictability of real
uncertainty
IJHMA Countries RMSE RMPAE MSPE MAPE

Full sample
Greece 3.29E-04 1.04E-02 1.08E-07 1.08E-04
Japan 1.56E-03 1.80E-02 2.43E-06 3.25E-04
The USA 9.04E-04 1.38E-02 8.18E-07 1.91E-04
COVID-19 peak sample
Greece 4.60E-04 1.42E-02 2.12E-07 2.01E-04
Japan 2.73E-03 2.55E-02 7.46E-06 6.50E-04
The USA 1.58E-03 2.05E-02 2.51E-06 4.20E-04
COVID-19 Recovery Sample
Greece 2.36E-04 9.00E-03 5.58E-08 8.18E-05
Japan 3.36E-04 1.32E-02 1.13E-07 1.75E-04
Table 3. The USA 1.65E-04 9.30E-03 2.72E-08 8.66E-05
Parameter stability
check Source: Authors’ own creation

Out-of-sample
Countries In-sample h ¼ 12 h ¼ 24 h ¼ 48

Full sample
Greece 2.79E-04 3.24E-04 3.35E-04 3.35E-04
Japan 3.85E-04 1.53E-03 1.58E-03 1.58E-03
The USA 2.37E-04 7.93E-04 9.11E-04 9.14E-04
COVID-19 peak sample
Greece 3.62E-04 4.61E-04 4.84E-04 4.81E-04
Japan 4.24E-04 2.79E-03 2.74E-03 2.75E-03
The USA 3.50E-04 1.46E-03 1.59E-03 1.59E-03
COVID-19 recovery sample
Greece 2.73E-04 2.35E-04 2.36E-04 2.44E-04
Japan 3.66E-04 3.36E-04 3.36E-04 3.42E-04
Table 4. The USA 1.96E-04 1.77E-04 1.77E-04 1.77E-04
Root mean squared
error results Source: Authors’ own creation

market volatility. The study by Wang et al. (2020) established that when government
policies are highly uncertain, expansionary monetary policy can boost house prices;
however, if the government adopts a contractionary monetary policy, then it would be
difficult to manage and control house prices. Additionally, Lu et al. (2023a, 2023b)
determined that the MPU impacts housing market volatility which varies across the cities in
China. Accordingly, when monetary policy is uncertain, the participants of the market
wisely evaluate the possible implications of policy modifications. Moreover, the uncertainty
may direct the participants to suspend real estate transactions, add steadiness and generate
a safeguarding effect in contrast to unexpected market changes. Unequaled demand and
supply are also expected because both buyers and sellers recede their expectations in
uncertain periods, resulting in a more dignified market response and less noticeable price
fluctuation. Therefore, increasing MPU can encourage market participants to act cautiously
and thoughtfully to reduce real estate market volatility.
 Results for COVID-19 peak period illustrate that ARCH and GARCH coefficients are Monetary
significant for Greece, Japan and the USA. While the magnitude of the volatility persistence is policy
lower as compared to the volatility persistence attained in full sample period. Adjusted beta
polynomial weights are significant and still >1. However, the coefficient of slope implies that
uncertainty
MPU negatively impacts real estate volatility to a greater extent during the COVID-19 peak. It
exhibits that market participants were more alert regarding economic challenges that
intensified the uncertainty during COVID-19 peak period, as the central bank implemented
unprecedented actions regarding monetary policy to stabilize the economies. Lu et al. (2023a,
2023b) also identified that COVID-19 has adverse relation with housing prices. According to the
study of Lhuissier et al. (2020) and Pirrong (2020), the duration of health crisis can be known as
a liquidity trap because monetary policy was evidently weak during this period in the Europe,
Japan and the USA. The liquidity trap is a state where an interest rate is very low or equivalent
to zero and monetary power is impotent in increasing the interest rate through expansionary
monetary policy [4]; hence, it does not stimulate economic growth [5]. The cause of liquidity
trap is the hoarding of cash by individuals to avoid financial losses caused by catastrophic
events like COVID-19. Accordingly, real estate market volatility reduced with MPU during the
COVID-19 peak period as market participants were hesitant to invest in real estate. It is
documented that Greece hoarded the high liquidity [6] and household savings hit a record of
33% in the USA because of the pandemic, as households were curbing investments and
preferred to hold the cash [7]. While in Japan, people were hoarding cash during the pandemic
regardless of relaxing restrictions with an increased saving rate up to 62tn yen or US$478bn or
greater than 10% of GNI of the country [8]. Hence, it is inferred that the central bank’s actions
regarding monetary policy were uncertain during COVID-19 and investors prevented losses by
holding the cash which led to a reduction in real estate volatility in Greece, Japan and the USA.
Results of COVID-19 recovery period are identical to COVID-19 peak period except for
the slope coefficient which is lower. Findings illustrated that MPU reduced real estate
market volatility with a lower magnitude during the COVID-19 recovery period for all
considered countries. In accordance with the Monetary Policy Report of Greece Bank 2020–
2021, increased global inflation results in increased rates of food, energy and other
commodities, reduced pent-up demand after post-COVID restrictions and disrupted supply
chains [9] Therefore, investors were still careful before investing in real estate market which
controls the minor price fluctuation.
Figures (3–5) describe the total and secular volatility attained from results of the model
for three sample periods. The secular volatility is signified by blue solid lines, and the total
volatility is denoted by green dotted lines. The graphs elucidate the strong evidence that
MPU predicts real estate volatility. It exemplifies that increases in MPU lead to a significant
decline in the real estate market volatility. During a complete period, both secular and total
volatility exhibit parallel patterns in the USA and Japan. However, the secular volatility is
flatter than total volatility in Greece. In peak and recovery period of COVID-19, both
volatilities move together; however, the recovery period indicates recurrent movement of
volatility. Therefore, it denotes that during the recovery period, the MPU highly influences
the real estate market volatility.

4.2 Parameter stability check

There are multiple techniques of parameter stability check applied to examine the variance
prediction namely, RMSE, root mean absolute prediction error, mean squared prediction
error and mean absolute prediction error. Table 3 represents that the values are lower than
0.1. Thus, the outcomes corroborate with the model.
IJHMA

Figure 3.
Estimated volatility
of real estate markets
because of monetary
policy uncertainty for
the complete period

4.3 Root mean squared error results

Table 4 illustrates the model performance in three considered sample periods of the study. The
table represents in-sample and out-sample forecast performance applying RMSE test which
refers to competence measure. Application of RMSE correlates with model contained in study
(Engle et al., 2013). RMSE technique renders the foundation for smaller RMSE which provide
more appropriate forecasts. In Table 4, findings exhibit the most satisfactory model performance
in all three considered sample periods, especially in in-sample and out-sample forecast horizons
(h ¼ 12, 24 and 48).
 Monetary
policy
uncertainty

Figure 4.
Estimated volatility
of real estate markets
because of monetary
policy uncertainty for
the COVID-19 peak
period

5. Conclusion, practical implications and limitations and future

recommendations of the study
5.1 Conclusion
This research investigated the nexus between MPU and real estate market volatility
considering Greece, Japan and the USA by using the GARCH-MIDAS model. There are two
key objectives for conducting this research. First objective is to find the predictability of
MPU for real estate market volatility while the second objective includes a further
examination of out-of-sample predictability of MPU-based model by using multiple forecast
IJHMA

Figure 5.
Estimated volatility
of real estate markets
because of monetary
policy uncertainty for
the COVID-19
recovery period

horizons to attain the forecasts. This study covers the time span from January 01, 2020 to
February 28, 2023 with a particularly focused on three sample periods such as COVID-19
peak period (January 01, 2020–December 31, 2020), the COVID-19 Recovery Period (January
01, 2021 to February 28, 2023) and the full sample (January 01, 2020 to February 28, 2023).
The outcomes reveal that MPU significantly predicts real estate market volatility.
Additionally, real estate market volatility is highly affected by MPU throughout COVID-19
peak period, as compared to full sample period and COVID-19 recovery period; thus, it
established a significant decline in real estate market volatility during crisis.
5.2 Practical implications Monetary
The study offers practical implications to policymakers, investors and real estate market policy
participants. The policymakers must formulate or revise the policies by comprehending the
link between MPU and real estate market dynamics. Accordingly, policymakers should
uncertainty
execute measures intended to alleviate real estate market volatility and ease possible
economic risks during uncertainty phase. These may contain involvements to guarantee
credit accessibility, measures to upsurge demand or regulatory modifications to uphold
market equilibrium. Moreover, regulatory bodies should carefully monitor the standards of
mortgage lending to avoid risky lending practices that may cause housing market bubbles
and also confirm mortgage relief programs to support landowners experiencing financial
constraints, averting foreclosures that can weaken the housing market.
For investors, this study highlights the mandatory need to diversify their portfolio
investments across different assets, so investors can effectively distribute risk and decrease
exposure to possible fluctuations prompted by monetary policy shifts. Additionally, this
study underscores the significance of making well-informed decisions based on central bank
policies and economic indicators in the countries under consideration. Hence, investors who
remain attentive about monetary policy changes are able to make more well-timed and well-
informed decisions about the time to purchase, vend or hold real estate assets. Moreover,
real estate investors should reexamine investments in retail properties because the
pandemic increased the shift to e-commerce and changed the retail real estate dynamics.
Similarly, real estate participants can develop and improve risk management strategies
by considering the uncertain monetary policy influences on real estate market. Real estate
participants should navigate the multifaceted setting of real estate markets according to
monetary policy change.

5.3 Limitations and future recommendations

This study encounters some limitations which can be addressed in future studies. First, the
study is only focusing on the nexus between MPU and real estate market volatility; thus,
future studies can study the efficiency of macroprudential policies and their ability to
stabilize the property markets during uncertain monetary policy. This study does not
include the behavioral aspect of market participants; hence, future research can analyze the
connections between global economic cases, MPU, behavioral aspects of market participants
and real estate market. Finally, this study covers Greece, Japan and the USA; therefore,
future comparative studies can incorporate different regions to provide a comprehensive
assessment of fluctuating institutional situations.

Notes
1. www.nar.realtor/research-and-statistics/quick-real-estate-statistics
2. www.statista.com/statistics/1174722/annual-house-price-change-in-greece/
3. www.policyuncertainty.com/bbd_monetary.html
4. http://assets.press.princeton.edu/chapters/reinert/6article_ito_liquidity.pdf
5. https://corporatefinanceinstitute.com/resources/economics/liquidity-trap/
6. www.cushmanwakefield.com/en/insights/covid-19/covid-19-impacts-greece-real-estate
7. www.cnbc.com/2020/05/29/us-savings-rate-hits-record-33percent-as-coronavirus-causes-
americans-to-stockpile-cash-curb-spending.html
IJHMA 8. https://asia.nikkei.com/Economy/Japan-consumers-cling-to-COVID-savings-as-anxiety-grips-
country
9. www.bankofgreece.gr/en/news-and-media/press-office/news-list/news?announcement¼039fd9e0-
c60f-4d96-9ad1-cdfbfe17a365

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Further reading
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volatility”, Journal of Applied Econometrics, Vol. 23 No. 1, pp. 65-90.
Xu, X.E. and Chen, T. (2012), “The effect of monetary policy on real estate price growth in China”,
Pacific-Basin Finance Journal, Vol. 20 No. 1, pp. 62-77.

Corresponding author
Mansoora Ahmed can be contacted at: mansooraahmed@hotmail.com

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