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
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Pages (from-to) | 61-78 |
| Journal / Publication | Contemporary Economic Policy |
| Volume | 41 |
| Issue number | 1 |
| Online published | 16 Jun 2021 |
| Publication status | Published - Jan 2023 |
Link(s)
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, Vol. 41, No. 1, 01.2023, p. 61-78.Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
