House Price Dynamics and Granger Causality: An Analysis of Taipei New Dwelling Market

Ming-Chi Chen and Kanak Patel ()
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Ming-Chi Chen: Department of Land Economy, University of Cambridge, Cambridge, UK, http://www.cus.cam.ac.uk
Kanak Patel: Department of Land Economy, University of Cambridge, Cambridge, UK, http://www.cus.cam.ac.uk

International Real Estate Review, 1998, vol. 1, issue 1, 101-126

Abstract: The primary purpose of this paper is to examine dynamic causal relationships between house price and its five determinants, including total household income, short-run interest rates, stock price index, construction costs, and housing completions, in Taipei new dwelling market. Granger causality tests, variance decomposition, impulse response functions based on the vector error-correction model are utilised. All five determinants Granger cause house prices, but only house prices and stock price index have a bilateral feedback effect. The variance decomposition results suggest that disturbances originating from current house prices inflict greatest variability (66 percent of variance) to future prices. The remaining 34 percent of the variance is explained by the five determinants. On the supply side, the construction costs and housing completions together explain about 10 percent of the house price variance. On the demand side, short-run interest rates, total household income and stock price index explain about 24 percent of the variance.

Keywords: Vector Error-correction Model; Granger Causality Test; Generalised Impulse Response Function (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 1998
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