Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?
A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long-run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post‐2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.
Volume (Year): 86 (2010)
Issue (Month): 275 (December)
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