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What Causes Asset Price Bubble in an Emerging Economy? Some Empirical Evidence in the Housing Sector of India

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  • Mantu Kumar Mahalik
  • Hrushikesh Mallick

Abstract

This study examines the dynamic causal relationships between house prices and their five determinants - real income, short-run real interest rates, real stock price index, real effective exchange rate, and real non-food bank credit - by using the quarterly data from 1996:Q1 to 2007:Q1 for India. Using the cointegration test and the vector error-correction model (VECM), the study finds that in the long run, real income significantly and positively influences the housing prices while real non-food bank credit adversely influences it. The variance decomposition results suggest that it is the shocks to the non-food bank credit that mainly explains the variability in housing prices, besides its own shocks being the most influential while other factors are not significant. This suggests that the role of credit availability as a supply side determinant cannot be underestimated in the dynamic behaviour of housing prices in emerging economies.

Suggested Citation

  • Mantu Kumar Mahalik & Hrushikesh Mallick, 2011. "What Causes Asset Price Bubble in an Emerging Economy? Some Empirical Evidence in the Housing Sector of India," International Economic Journal, Taylor & Francis Journals, vol. 25(2), pages 215-237.
  • Handle: RePEc:taf:intecj:v:25:y:2011:i:2:p:215-237 DOI: 10.1080/10168737.2011.586806
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    Cited by:

    1. Kholodilin, Konstantin A. & Ulbricht, Dirk, 2015. "Urban house prices: A tale of 48 cities," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-43.
    2. Sanjay Sehgal & Mridul Upreti & Piyush Pandey & Aakriti Bhatia, 2015. "Real Estate Investment Selection and Empirical Analysis of Property Prices: Study of Select Residential Projects in Gurgaon, India," International Real Estate Review, Asian Real Estate Society, vol. 18(4), pages 523-566.
    3. Konstantin A. Kholodilin, 2012. "Internet Offer Prices for Flats and Their Determinants: A Cross Section of Large European Cities," Discussion Papers of DIW Berlin 1212, DIW Berlin, German Institute for Economic Research.

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