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What Drives House Prices in Australia? A+L4584 Cross-Country Approach

  • Shengzu Wang
  • Patrizia Tumbarello

This paper analyzes the factors driving house prices in Australia from a cross-country perspective using several approaches. It uses a cointegration technique to estimate the long-run equilibrium house prices in Australia, New Zealand, and Canada and assesses the extent of a possible disequilibrium. It also presents an event analysis to shed some light on the link between house prices, capital inflows and the terms of trade. The econometric analysis suggests an overvaluation of 5-10 percent depending on the model specification. Event analysis indicates that terms of trade shocks were associated with larger increases in house prices in Australia, than in the case of strong capital inflow episodes.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/291.

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Length: 24
Date of creation: 01 Dec 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/291
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  1. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "House Prices in Australia - 1970 to 2003 - Facts and Explanations," Research Papers 0504, Macquarie University, Department of Economics.
  2. Balazs Egert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," William Davidson Institute Working Papers Series wp894, William Davidson Institute at the University of Michigan.
  3. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March.
  4. Mardi Dungey & Adrian Pagan, 2009. "Extending a SVAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 85(268), pages 1-20, 03.
  5. Stephen Malpezzi, 1998. "A Simple Error Correction Model of House Prices," Wisconsin-Madison CULER working papers 98-11, University of Wisconsin Center for Urban Land Economic Research.
  6. Renee Fry & James Hocking & Vance L. Martin, 2008. "The Role of Portfolio Shocks in a Structural Vector Autoregressive Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 84(264), pages 17-33, 03.
  7. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
  8. Williams, David M, 2009. "House prices and financial liberalisation in Australia," MPRA Paper 15212, University Library of Munich, Germany.
  9. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
  10. Luci Ellis & Dan Andrews, 2001. "City Sizes, Housing Costs, and Wealth," RBA Research Discussion Papers rdp2001-08, Reserve Bank of Australia.
  11. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
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