The dynamics of the house price‐to‐income ratio : Theory and evidence
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
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Detail(s)
Original language | English |
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Journal / Publication | Contemporary Economic Policy |
Online published | 16 Jun 2021 |
Publication status | Online published - 16 Jun 2021 |
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Abstract
The house price-to-income ratio (PIR) is widely used as an affordability indicator. This paper complements the cross-sectionally focused literature by proposing a tractable model for the PIR dynamics. Our model predicts that the PIR is very persistent and is correlated to the lagged aggregate output. Cross-country analysis confirms this prediction and provides evidence for a long-term, positive, and significant relationship between PIR and aggregate production. Our results hint at the construction of an early warning system for housing market mispricing. Our tractable formulation of a stochastic money growth rule may carry independent research interest.
Research Area(s)
- endogenous house price, housing affordability, monetary policy rule, output dynamics, wage rigidity
Citation Format(s)
The dynamics of the house price‐to‐income ratio : Theory and evidence. / Leung, Charles Ka Yui ; Tang, Edward Chi Ho.
In: Contemporary Economic Policy, 16.06.2021.Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review