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House-Price Crash and Macroeconomic Crisis: A Hong Kong Case Study

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  • Zhang, Tongbin
  • Hu, Bo

Abstract

House prices crash has become an important feature of macroeconomic crisis. We argue that house prices crash driven by contractionary monetary policy is not only a reaction to crisis, but also accelerates and amplifies the fluctuations of major macroeconomic variable. In this paper, we conduct a case study of Hong Kong in the 1997-1998 financial crisis and quantitatively analyze the mechanism by developing a general equilibrium model incorporating financial accelerator mechanism into both household and entrepreneur sectors. After estimating and simulating the model, impulse response results imply that our model can explain the co-movement of house prices, consumption, and investment better than the alternative models.

Suggested Citation

  • Zhang, Tongbin & Hu, Bo, 2011. "House-Price Crash and Macroeconomic Crisis: A Hong Kong Case Study," MPRA Paper 34962, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34962
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    References listed on IDEAS

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    Cited by:

    1. Ng, Eric C.Y. & Feng, Ning, 2016. "Housing market dynamics in a small open economy: Do external and news shocks matter?," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 64-88.

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    More about this item

    Keywords

    house prices; fianncial accelerator; consumption; investment; Hong Kong;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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