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An Econometric Demand�Supply Model For Swedish Private Housing

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  • Bharat Barot

Abstract

A housing market model for Sweden has been estimated on semi-annual data for 1970-97 by separately modelling the demand and the supply sides, specified in error correction form. On the demand side in the short run house prices adjust to the changes in the real after-tax long interest rate, financial wealth, the employment rate, rents and, finally, population. There is an underlying long-run relationship between real house prices and the following ratios: debt to income, debt to financial wealth, private housing stock to income, the stock of rental housing (flats) to the private housing stock, and the real aftertax long interest rate. The supply side, based on Tobin's q -index, the short interest rate and stock market returns, generates the investment flow which determines the evolution in stock. The results indicate that even in a turbulent period, Swedish house prices and housing investment are tracked quite well with this specification. The importance of the simulations and their usefulness to Swedish policy-makers is discussed. According to our model, many factors were instrumental in producing the house price boom of the late 1980s. Initial debt levels were low as were real house prices, giving scope for rises in both, and these became more important as a result of financial liberalization, though partly offset by higher real interest rates. We also discuss the controversy over the causes of the 1991-93 recession in the context of the 1991 tax reform. Tests of model adequacy indicate that the housing price and Tobin's q housing investment models are stable and robust and satisfy intuitive theoretical prerequisites.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal European Journal of Housing Policy.

Volume (Year): 1 (2001)
Issue (Month): 3 (December)
Pages: 417-444

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Handle: RePEc:taf:eurjhp:v:1:y:2001:i:3:p:417-444

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Related research

Keywords: Error Correction Steady State Tobin'S Simultaneous Model;

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References

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  1. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers 1284, C.E.P.R. Discussion Papers.
  2. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
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  9. Meen, Geoffrey P, 1990. "The Removal of Mortgage Market Constraints and the Implications for Econometric Modelling of UK House Prices," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(1), pages 1-23, February.
  10. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  11. Berg, Lennart & Bergstrom, Reinhold, 1995. " Housing and Financial Wealth, Financial Deregulation and Consumption--The Swedish Case," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 421-39, September.
  12. Barot, Bharat & Takala, Kari, 1998. "House Prices and Inflation: A Cointegration Analysis for Finland and Sweden," Research Discussion Papers 12/1998, Bank of Finland.
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  14. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-55, December.
  15. Denise DiPasquale & William C. Wheaton, 1992. "The Markets for Real Estate Assets and Space: A Conceptual Framework," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 181-198.
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Cited by:
  1. Bharat Barot & Zan Yang, 2004. "House Prices and Housing Investment in Sweden and the UK. Econometric analysis for the period 1970-1998," Macroeconomics 0409022, EconWPA.
  2. Barot, Bharat, 2002. "Growth and Business Cycles for the Swedish Economy 1963-1999," Working Paper 79, National Institute of Economic Research.
  3. Yang, Zan & Wang, S.T., 2012. "Permanent and transitory shocks in owner-occupied housing: A common trend model of price dynamics," Journal of Housing Economics, Elsevier, vol. 21(4), pages 336-346.
  4. Barot, Bharat & Yang, Zan, 2002. "House Prices and Housing Investment in Sweden and the United Kingdom: Econometric Analysis for the Period 1970-1998," Working Paper 80, National Institute of Economic Research.

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