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House-Price Crash and Macroeconomic Crisis: A Hong Kong Case Study

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  • Zhang, Tongbin
  • Hu, Bo

Abstract

House prices crash has become an important feature of macroeconomic crisis. We argue that house prices crash driven by contractionary monetary policy is not only a reaction to crisis, but also accelerates and amplifies the fluctuations of major macroeconomic variable. In this paper, we conduct a case study of Hong Kong in the 1997-1998 financial crisis and quantitatively analyze the mechanism by developing a general equilibrium model incorporating financial accelerator mechanism into both household and entrepreneur sectors. After estimating and simulating the model, impulse response results imply that our model can explain the co-movement of house prices, consumption, and investment better than the alternative models.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34962.

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Date of creation: 22 Nov 2011
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Handle: RePEc:pra:mprapa:34962

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Keywords: house prices; fianncial accelerator; consumption; investment; Hong Kong;

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