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Housing prices and the business cycle: An empirical application to Hong Kong

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  • Funke, Michael
  • Paetz, Michael

Abstract

This paper develops a two-agent, two-sector, open-economy DSGE model with a housing-market sector and a borrowing constraint. Contrary to standard conventions, domestic households are allowed to invest in foreign housing and vice versa. Using Bayesian methods, the model is applied to data for Hong Kong. We identify strong and robust housing wealth effects, and show that property prices are mainly driven by intratemporal preference perturbations rather than by disturbances in financial frictions or price mark up shocks. These disturbances also explain a non-negligible part of the volatility of consumption, GDP and employment.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 22 (2013)
Issue (Month): 1 ()
Pages: 62-76

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Handle: RePEc:eee:jhouse:v:22:y:2013:i:1:p:62-76

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Web page: http://www.elsevier.com/locate/inca/622881

Related research

Keywords: DSGE models; Housing; Open economy; Hong Kong; D91; E21; E44; F41;

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  1. Funke, Michael & Paetz , Michael & Pytlarczyk, Ernest, 2009. "Stock market wealth effects in an estimated DSGE model for Hong Kong," BOFIT Discussion Papers 14/2009, Bank of Finland, Institute for Economies in Transition.
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Citations

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Cited by:
  1. Funke, Michael & Paetz, Michael, 2012. "A DSGE-Based Assessment of Nonlinear Loan-to-Value Policies: Evidence from Hong Kong," BOFIT Discussion Papers 11/2012, Bank of Finland, Institute for Economies in Transition.
  2. Xi Chen & Michael Funke, 2013. "Renewed Momentum in the German Housing Market: Boom or Bubble?," CESifo Working Paper Series 4287, CESifo Group Munich.
  3. Blagov , Boris & Funke, Michael, 2013. "The regime-dependent evolution of credibility: A fresh look at Hong Kong’s linked exchange rate system," BOFIT Discussion Papers 24/2013, Bank of Finland, Institute for Economies in Transition.

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