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Transmission Channels Linking Real Estate Shocks with Macroeconomic Performance: Evidence from Malaysia

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    Abstract

    This paper examines the transmission channels through which property markets propagate shocks to the real economy. Using a four-equation model which portrays the theoretical inter-linkages between real estate value and other components of the economy, our findings suggest that in the short run, negative real estate shocks affect GDP by dampening construction, bank lending activities and to a certain extent, consumption. The impact of shocks on investment is harder to decipher given the complicated dynamics arising from an almost instantaneous adjustment process towards equilibrium each time the system is perturbed. In the long run, there is no evidence of positive wealth effects on consumption while sustained depressions in property markets could be harmful to future economic growth.

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    Paper provided by Nottingham University Business School Malaysia Campus in its series NUBS Malaysia Campus Research Paper Series with number 2008-09.

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    Date of creation: Jun 2008
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    Handle: RePEc:nom:nubsmc:2008-09

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    Keywords: Real estate shocks; Transmission channels; Macroeconomic performance;

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