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What Drives House Prices in Australia? A+L4584 Cross-Country Approach

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Author Info

  • Shengzu Wang
  • Patrizia Tumbarello

Abstract

This paper analyzes the factors driving house prices in Australia from a cross-country perspective using several approaches. It uses a cointegration technique to estimate the long-run equilibrium house prices in Australia, New Zealand, and Canada and assesses the extent of a possible disequilibrium. It also presents an event analysis to shed some light on the link between house prices, capital inflows and the terms of trade. The econometric analysis suggests an overvaluation of 5-10 percent depending on the model specification. Event analysis indicates that terms of trade shocks were associated with larger increases in house prices in Australia, than in the case of strong capital inflow episodes.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/291.

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Length: 24
Date of creation: 01 Dec 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/291

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Related research

Keywords: Capital inflows; Terms of trade; Economic models; Housing prices; capital inflow; trade shocks; terms of trade shocks; commodity prices; current account deficit; trade shock; capital flows; private capital inflows; commodity exporters; domestic demand; capital inflow episodes; nominal interest rates; prudential regulation; private capital; per capita income; current account balance; net capital; aggregate demand; capital inflow episode; open economy; capital income; world economy; real effective exchange rate; capital flow; stock market;

This paper has been announced in the following NEP Reports:

References

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  1. Balázs Egert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," CESifo Working Paper Series 2152, CESifo Group Munich.
  2. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "House Prices in Australia - 1970 to 2003 - Facts and Explanations," Research Papers 0504, Macquarie University, Department of Economics.
  3. Luci Ellis & Dan Andrews, 2001. "City Sizes, Housing Costs, and Wealth," RBA Research Discussion Papers rdp2001-08, Reserve Bank of Australia.
  4. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March.
  5. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
  6. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
  7. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
  8. Renee Fry & James Hocking & Vance L. Martin, 2008. "The Role of Portfolio Shocks in a Structural Vector Autoregressive Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 17-33, 03.
  9. Mardi Dungey & Adrian Pagan, 2008. "Extending an SVAR Model of the Australian Economy," NCER Working Paper Series 21, National Centre for Econometric Research.
  10. David M. Williams, 2009. "House prices and financial liberalisation in Australia," Economics Series Working Papers 432, University of Oxford, Department of Economics.
  11. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
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Cited by:
  1. Luis M. Cubeddu & Camilo Ernesto Tovar Mora & Evridiki Tsounta, 2012. "Latin America," IMF Working Papers 12/193, International Monetary Fund.
  2. Judith Yates, 2011. "Housing in Australia in the 2000s: On the Agenda Too Late?," RBA Annual Conference Volume, in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.

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