Asymmetric Inflation Hedge of Housing Return: A Non-linear Vector Error Correction Approach

Kuan Min Wang, Lee Yuan-Ming () and Nguyen T.T.Binh ()
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Lee Yuan-Ming: Department of Finance, Diwan College of Management, 87-1 Nanshih Li, Madou, Taiwan
Nguyen T.T.Binh: Department of Accounting, Chaoyang University of Technology, 168 Jifong E. Road, Wufong Township Taichung County, 41349, Taiwan

International Real Estate Review, 2008, vol. 11, issue 1, 65-82

Abstract: Conclusions of past works on the inflation hedging ability of real estate investment are not consistent. The reason for this perplexity might be the neglect of separation between high and low state of inflation, which has a great influence on empirical results. In order to examine the inflation hedging effectiveness of real estate with Taiwanese monthly housing returns and inflation, this paper uses the inflation as the threshold variable to create the nonlinear vector correction model that divides the inflation rates into high and low regime. We find robust evidence that when inflation rates are higher than 0.83% threshold value, housing returns are able to hedge against inflation, and, otherwise, they are unable. Using new methodology to discover new implications is main contribution of this study.

Keywords: Housing prices; Inflation; Nonlinear VECM; Taiwan (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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