Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?

Renée A. Fry; Vance L. Martin; Nicholas Voukelatos

doi:10.1111/j.1475-4932.2010.00639.x

Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?

Renée A. Fry^*, Vance L. Martin, Nicholas Voukelatos

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

25 Citations (Scopus)

Abstract

A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long-run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post-2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.

Original language	English
Pages (from-to)	465-485
Number of pages	21
Journal	Economic Record
Volume	86
Issue number	275
DOIs	https://doi.org/10.1111/j.1475-4932.2010.00639.x
Publication status	Published - Dec 2010

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title = "Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?",

abstract = "A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long-run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post-2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.",

author = "Fry, \{Ren{\'e}e A.\} and Martin, \{Vance L.\} and Nicholas Voukelatos",

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T2 - Wealth Effects or Monetary Policy?

AU - Fry, Renée A.

AU - Martin, Vance L.

AU - Voukelatos, Nicholas

PY - 2010/12

Y1 - 2010/12

N2 - A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long-run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post-2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.

AB - A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long-run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post-2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.

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U2 - 10.1111/j.1475-4932.2010.00639.x

DO - 10.1111/j.1475-4932.2010.00639.x

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EP - 485

JO - Economic Record

JF - Economic Record

IS - 275

ER -

Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?

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