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

Author/Editor:

Shengzu Wang ; Patrizia Tumbarello

Publication Date:

December 1, 2010

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2010/291

Subject:

Asset prices Balance of payments Capital inflows Housing Housing prices International trade National accounts Prices Terms of trade

English

Publication Date:

December 1, 2010

ISBN/ISSN:

9781455211722/1018-5941

Stock No:

WPIEA2010291

Pages:

24

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