Dynamics relationship between house prices and macroeconomic aggregates
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Date
2005-05
Authors
Bukryman Sabri
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Abstract
This study investigates the dynamic relationships amongst the house prices and macroeconomic variables. It is general belief that the macro variables such as inflation rates, industrial production, interest rates and money supply (M2) are some prominent factors to the performance of the house prices. The property market and construction sector are one of the leading indicators for the economic growth. The VAR model of Johansen-Jeselius multivariate cointegration test, multivariate Granger-causality test and also the Vector Error Correction Model (VECM) are applied to capture the dynamic linkages among those variables over the period of 1988:1 to 2004:2. in this study, the consumer price index is used to represent the inflation rates. The performance of industrial sector and interest rates on the other hand is measured by industrial production index and base lending rates. The empirical results of this study indicate that the house prices and macroeconomic variables are moving together towards its equilibrium path in the long-run. In the short-run, there are evidences of contemporaneous causality running between the variables. The results show that the general performance of the house prices is caused by the changes in industrial production and base lending rates. The house prices on the other hand, have shown different responses to the fluctuations in the macroeconomics variables. the house prices appear to be the least sensible to money supply (M2) and consumer price index. This study thus implies that an efficient management of macroeconomic policies will promote a better performance of house prices, which in turn helps to achieve a stronger and sustainable economic growth.
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Keywords
Business Administration , House Prices , Macroeconomic Aggregates