REITs' dynamics under structural change with unknown break points

This paper considers dynamic behaviors of returns on real estate, equity markets, and related macroeconomic variables. Using monthly data measured over the period 1971-2004, we find a single structural break in a multivariate time series model of returns on REITs, returns on equities, industrial production, aggregate price inflation, default risk, the term spread, and short term interest rates. The break date is October 1980. A distinct difference in the contemporaneous causal structure generating these variables before and after the break is found. The paper shows that REITs play a more important role in the US economy after the 1980 break than before.