Abstract
This paper makes use of two copula functions namely the Normal and the student-t
copulas to model the Unconditional and conditional dependence structure between
real house and oil price returns. Using annual house and oil prices from 1860 to 2013;
we find a significant negative unconditional dependence structure between the real
house and oil prices returns. To understand the evolution of this type of dependence
structure; we develop a time varying Student-t copula model. This model confirms that
the level of the current dependence structure beween oil and house prices returns is
a function of the previous dependence between the two. Based on the fitted
dependence values we identify two types of dependence structure: a weak
dependence structure characterised by positive values, and a strong dependence
structure characterised by negative values. The paper argues that weak dependence
structure is found in regions with large number of energy sector jobs, while strong
dependence is found in the rest of the regions. Our sample period is found to be
dominated by strong negative dependence structure.