Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/234937
Authors: 
Leung, Charles Ka Yui
Tang, Edward Chi Ho
Year of Publication: 
2021
Series/Report no.: 
ISER Discussion Paper No. 1125
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.
Subjects: 
housing affordability
output dynamics
endogenous house price
wage rigidity
monetary policy rule
JEL: 
E30
O40
R30
Document Type: 
Working Paper

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