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Long-Run Drivers and Short-Term Dynamics of the Swedish Real House Prices

Maher Asal ()

Abstract of Economic, Finance and Management Outlook, 2016, vol. 7, 6

Abstract: This paper uses cointegration and vector autoregressive (VAR) model to investigate the long-run drivers and short-term dynamics of the real house prices in Sweden for the period 1986Q to 1995Q4. Specifically, we examine the extent to which real house prices are determined by affordability, demographic, and asset price factors. The empirical results indicate house prices to increase in the long-run by 0.8% in response to a 1% increase in household’s real disposable income, while after tax mortgage interest rate and real effective exchange rate show average long-term effects of approximately - 1% and - 5.3%, respectively. Suggesting that fiscal policy aimed to dampen real house appreciation needs to adress the issue of tax deductibility on mortgage rate. In addition, our results indicate that the growth of real house prices is affected by the growth of mortgage credit, after tax mortgage interest rate and disposable income in the short run, and among which the real effective exchange rate is the most significant determinant behind Swedish real house appreciation.

Date: 2016
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