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Housing prices and the business cycle: An empirical application to Hong Kong

Listed author(s):
  • Funke, Michael
  • Paetz, Michael

This paper develops a two-agent, two-sector, open-economy DSGE model with a housing-market sector and a borrowing constraint. Contrary to standard conventions, domestic households are allowed to invest in foreign housing and vice versa. Using Bayesian methods, the model is applied to data for Hong Kong. We identify strong and robust housing wealth effects, and show that property prices are mainly driven by intratemporal preference perturbations rather than by disturbances in financial frictions or price mark up shocks. These disturbances also explain a non-negligible part of the volatility of consumption, GDP and employment.

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File URL: http://www.sciencedirect.com/science/article/pii/S1051137712000745
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Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 22 (2013)
Issue (Month): 1 ()
Pages: 62-76

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Handle: RePEc:eee:jhouse:v:22:y:2013:i:1:p:62-76
DOI: 10.1016/j.jhe.2012.11.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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  26. Monacelli, Tommaso, 2006. "New Keynesian Models, Durable Goods and Collateral Constraints," CEPR Discussion Papers 5916, C.E.P.R. Discussion Papers.
  27. Matthew S. Yiu & Lu Jin, 2012. "Detecting Bubbles in the Hong Kong Residential Property Market: An Explosive-Pattern Approach," Working Papers 012012, Hong Kong Institute for Monetary Research.
  28. Darracq Pariès, Matthieu & Notarpietro, Alessandro, 2008. "Monetary policy and housing prices in an estimated DSGE for the US and the euro area," Working Paper Series 0972, European Central Bank.
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