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Asymmetric Inflation Hedge of Housing Return: A Non-linear Vector Error Correction Approach

Author

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  • Kuan-Min, Wang

    (Department of Finance, Overseas Chinese Institute of Technology, 100 Chiao Kwang Road, Taichung, 40721, Taiwan)

  • Yuan-Ming, Lee

    (Department of Finance, Diwan College of Management, 87-1 Nanshih Li, Madou, Taiwan)

  • T.T.Binh, Nguyen

    (Department of Accounting, Chaoyang University of Technology, 168 Jifong E. Road, Wufong Township Taichung County, 41349, Taiwan)

Abstract

Conclusions of past works on the inflation hedging ability of real estate investment are not consistent. The reason for this perplexity might be the neglect of separation between high and low state of inflation, which has a great influence on empirical results. In order to examine the inflation hedging effectiveness of real estate with Taiwanese monthly housing returns and inflation, this paper uses the inflation as the threshold variable to create the nonlinear vector correction model that divides the inflation rates into high and low regime. We find robust evidence that when inflation rates are higher than 0.83% threshold value, housing returns are able to hedge against inflation, and, otherwise, they are unable. Using new methodology to discover new implications is main contribution of this study.

Suggested Citation

  • Kuan-Min, Wang & Yuan-Ming, Lee & T.T.Binh, Nguyen, 2008. "Asymmetric Inflation Hedge of Housing Return: A Non-linear Vector Error Correction Approach," International Real Estate Review, Global Social Science Institute, vol. 11(1), pages 65-82.
    • Handle: RePEc:ire:issued:v:011:n:01:2008:p:65-82
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    References listed on IDEAS

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    Cited by:

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    2. Luca Gattini & Huw Pill & Ludger Schuknecht, 2015. "A global perspective on inflation and propagation channels," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(3), pages 50-76, May.
    3. Aqsha, Nur Suhairah & Masih, Mansur, 2018. "Is residential property the ultimate hedge against inflation ? new evidence from Malaysia based on ARDL and nonlinear ARDL," MPRA Paper 91508, University Library of Munich, Germany.

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    More about this item

    Keywords

    Housing prices; Inflation; Nonlinear VECM; Taiwan;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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