Overvaluation In Australian Housing And Equity Markets: Wealth Effects Or Monetary Policy?
AbstractA 7 variate SVAR model is used to identify the presence and causes of overvaluation in real house prices in Australia from 2002 to 2008. An important feature of the model is the development of a housing sector where long-run restrictions are derived from economic theory to identify housing demand and supply shocks. The empirical results show that real house prices were overvalued during the period, reaching a peak of nearly 20% by the end of 2003. Important factors driving the observed overvaluation are housing demand shocks prior to 2006, and macroeconomic shocks in the goods market post 2006. Wealth effects from portfolio shocks in equity markets are also found to be an important driver. The results also suggest that monetary policy is not an important contributing factor in the overvaluation of house prices.
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2009-10.
Length: 37 pages
Date of creation: Mar 2009
Date of revision:
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Other versions of this item:
- Renée A. Fry & Vance L. Martin & Nicholas Voukelatos, 2010. "Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 465-485, December.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
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