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Error correction dynamics of house prices: an equilibrium benchmark

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  • Leung, Charles Ka Yui

    (City University of Hong Kong)

Abstract

Central to recent debates on the "mis-pricing" in the housing market and the proactive policy of central bank is the determination of the "fundamental house price." This paper builds a dynamic stochastic general equilibrium (DSGE) model that produces reduced-form dynamics that are consistent with the error-correction models proposed by Malpezzi (1999) and Capozza et al (2004). The dynamics of equilibrium house prices are tied to the dynamics of the house-price-to-income ratio. This paper also shows that house prices and incomes should be co-integrated, and hence provides a justification of using co-integration tests to detect possible "mis-pricing" in the housing market.

Suggested Citation

  • Leung, Charles Ka Yui, 2014. "Error correction dynamics of house prices: an equilibrium benchmark," Globalization and Monetary Policy Institute Working Paper 177, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:177
    DOI: 10.24149/gwp177
    Note: Published as: Leung, Charles Ka Yui (2014), "Error Correction Dynamics of House Prices: An Equilibrium Benchmark," Journal of Housing Economics 25: 75-95.
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    Citations

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    Cited by:

    1. Leung, Charles Ka Yui & Ng, Joe Cho Yiu, 2018. "Macro Aspects of Housing," Globalization and Monetary Policy Institute Working Paper 340, Federal Reserve Bank of Dallas.
    2. repec:bla:ausecp:v:55:y:2016:i:4:p:451-475 is not listed on IDEAS
    3. Zhou, Zhengyi, 2016. "Overreaction to policy changes in the housing market: Evidence from Shanghai," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 26-41.
    4. Kwan, Yum K. & Leung, Charles Ka Yui & Dong, Jinyue, 2015. "Comparing consumption-based asset pricing models: The case of an Asian city," Journal of Housing Economics, Elsevier, vol. 28(C), pages 18-41.
    5. repec:bla:pacecr:v:22:y:2017:i:3:p:293-311 is not listed on IDEAS
    6. Kuang-Liang Chang & Nan-Kuang Chen & Charles Ka Yui Leung, 2016. "Losing Track of the Asset Markets: the Case of Housing and Stock," International Real Estate Review, Asian Real Estate Society, vol. 19(4), pages 435-492.
    7. Charles Ka Yui LEUNG & Joe Cho Yiu NG, "undated". "Macro Aspects of Housing," ISER Discussion Paper 1030, Institute of Social and Economic Research, Osaka University.
    8. Leung, Charles Ka Yui & Tang, Edward Chi Ho, 2014. "Availability, Affordability and Volatility: the case of Hong Kong Housing Market," MPRA Paper 58770, University Library of Munich, Germany.
    9. Charles Ka Yui Leung, 2015. "Availability, Affordability and Volatility: The Case of the Hong Kong Housing Market," International Real Estate Review, Asian Real Estate Society, vol. 18(3), pages 383-428.
    10. repec:bla:pacecr:v:22:y:2017:i:3:p:312-331 is not listed on IDEAS

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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