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Do Asymmetric Causal Relationships Exist between Macroeconomic Variables and Housing Returns in Taiwan?

Author

Listed:
  • Kuan-Min Wang

    (Department of Finance, Overseas Chinese University, Taiwan)

  • Yuan-Ming Lee

    (Department of Finance, Southern Taiwan University, Taiwan)

  • Chien-Chiang Lee

    (Department of Finance, National Sun Yat-sen University, Taiwan)

Abstract

This study uses the unexpected stock return as the threshold variable to proxy for the business cycle and construct the threshold vector error correction model (TVECM) to examine whether an asymmetric causal relationship exists between the housing return and four macroeconomic variables, namely, inflation, the interest rate change, the stock return, and industrial production in Taiwan. First, the cointegration analysis shows that there is a stable relationship between the housing price and macroeconomic variables. Secondly, the TVECM results show that, during an expansion, all four macroeconomic variables have an insignificant effect on the housing return. However, during a recession, inflation has a positive effect and the interest rate change a negative effect on the housing return. Nevertheless, the effect of industrial production on the housing return is insignificant. Finally, our results support the asymmetric causality between the housing return and these four macroeconomic variables. Our conclusions also prove that an effective inflation hedge exists, that reflects the monetary shock and stock market haven of Taiwan's housing investment.

Suggested Citation

  • Kuan-Min Wang & Yuan-Ming Lee & Chien-Chiang Lee, 2012. "Do Asymmetric Causal Relationships Exist between Macroeconomic Variables and Housing Returns in Taiwan?," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 8(1), pages 25-57, January.
  • Handle: RePEc:jec:journl:v:8:y:2012:i:1:p:25-57
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    More about this item

    Keywords

    housing return; macroeconomic shock; TVECM model; business cycle; unexpected stock return;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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