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The Non-linear Ripple Effect of Housing Prices in Taiwan: A Smooth Transition Regressive Model

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  • Mei-Se Chien

Abstract

Being different from past research of regional housing prices, this paper employs smooth transition regression model, derived in Teräsvirta (1998), to investigate ripple effects among four regional house prices in Taiwan. The aim of this paper is to test whether a smooth transition regression model, which is capable of capturing this non-linear behaviour, can show a better characterisation of regional housing prices than a linear model. This empirical analysis applies the four regional house prices of Taiwan, including the capital in Taiwan, Taipei City, and its suburban area, New Taipei City, and the other two mega cities of Taichung City and Kaohsiung City, from the first quarter of 1998 to the second quarter of 2011. Using the changing rate of housing price of Taipei City to be the threshold variable, the empirical results of the smooth transition regression model show that the ripple effect exists between housing prices of New Taipei City and Taipei City, while there is no ripple effect between housing prices of New Taipei City, Taichung City and Kaohsiung City. Besides, this paper has presented evidence of a non-linear relationship between housing prices of New Taipei City and Taipei City. When the changing rate of housing price in Taipei City is lower than 15.02, increasing housing price of Taipei City will make the hosing price of New Taipei City rise. Inversely, if it is higher than 15.02, increasing housing price of Taipei City will make the hosing price of New Taipei City decrease.

Suggested Citation

  • Mei-Se Chien, 2013. "The Non-linear Ripple Effect of Housing Prices in Taiwan: A Smooth Transition Regressive Model," ERES eres2013_51, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2013_51
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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