Error correction dynamics of house prices: An equilibrium benchmark
•The determination of the “fundamental house price” (FHP) is central to recent policy debate.•This paper builds a dynamic stochastic general equilibrium (DSGE) model.•It produces reduced-form dynamics that are consistent with previous error-correction models.•The dynamics of house prices are tied to...
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| Published in | Journal of housing economics Vol. 25; pp. 75 - 95 |
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| Main Author | |
| Format | Journal Article |
| Language | English |
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Elsevier Inc
01.09.2014
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| Abstract | •The determination of the “fundamental house price” (FHP) is central to recent policy debate.•This paper builds a dynamic stochastic general equilibrium (DSGE) model.•It produces reduced-form dynamics that are consistent with previous error-correction models.•The dynamics of house prices are tied to the house-price-to-income ratio.•It justifies using the cointegration test between house prices and incomes to measure the FHP.
Central to recent debates on the “mis-pricing” in the housing market and the proactive policy of central bank is the determination of the “fundamental house price.” This paper builds a dynamic stochastic general equilibrium (DSGE) model that produces reduced-form dynamics that are consistent with the error-correction models proposed by Malpezzi (1999) and Capozza et al. (2004). The dynamics of equilibrium house prices are tied to the dynamics of the house-price-to-income ratio. This paper also shows that house prices and incomes should be co-integrated, and hence provides a justification of using co-integration tests to detect possible “mis-pricing” in the housing market. |
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| AbstractList | •The determination of the “fundamental house price” (FHP) is central to recent policy debate.•This paper builds a dynamic stochastic general equilibrium (DSGE) model.•It produces reduced-form dynamics that are consistent with previous error-correction models.•The dynamics of house prices are tied to the house-price-to-income ratio.•It justifies using the cointegration test between house prices and incomes to measure the FHP.
Central to recent debates on the “mis-pricing” in the housing market and the proactive policy of central bank is the determination of the “fundamental house price.” This paper builds a dynamic stochastic general equilibrium (DSGE) model that produces reduced-form dynamics that are consistent with the error-correction models proposed by Malpezzi (1999) and Capozza et al. (2004). The dynamics of equilibrium house prices are tied to the dynamics of the house-price-to-income ratio. This paper also shows that house prices and incomes should be co-integrated, and hence provides a justification of using co-integration tests to detect possible “mis-pricing” in the housing market. Central to recent debates on the 'mis-pricing' in the housing market and the proactive policy of central bank is the determination of the 'fundamental house price.' This paper builds a dynamic stochastic general equilibrium (DSGE) model that produces reduced-form dynamics that are consistent with the error-correction models proposed by Malpezzi (1999) and Capozza et al. (2004). The dynamics of equilibrium house prices are tied to the dynamics of the house-price-to-income ratio. This paper also shows that house prices and incomes should be co-integrated, and hence provides a justification of using co-integration tests to detect possible 'mis-pricing' in the housing market. All rights reserved, Elsevier |
| Author | Leung, Charles Ka Yui |
| Author_xml | – sequence: 1 givenname: Charles Ka Yui surname: Leung fullname: Leung, Charles Ka Yui email: kycleung@cityu.edu.hk organization: Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong |
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| Snippet | •The determination of the “fundamental house price” (FHP) is central to recent policy debate.•This paper builds a dynamic stochastic general equilibrium (DSGE)... Central to recent debates on the 'mis-pricing' in the housing market and the proactive policy of central bank is the determination of the 'fundamental house... |
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| SubjectTerms | Central banks Cointegration Economic dynamics Endogenous house price and income Error correction models Error-correction model Fundamental house price General economic equilibrium House price-to-income ratio Housing market Housing prices |
| Title | Error correction dynamics of house prices: An equilibrium benchmark |
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