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What Causes House Prices to Fluctuate? Evidence from South Korea

Jinwoong Lee, Jihee Ann () and Cheolbeom Park
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Jihee Ann: Associate Research Fellow, Research Division, Korea Real Estate Research Institute, 52 Bangbaero, Seochogu, Seoul, Korea 06705

No 2103, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: In this study, we build a structural vector autoregressive model of the housing market with supply and demand shocks to determine the main causes of house price movements in South Korea. We include housing permits, basic housing demand which is constructed in a similar manner to Mankiw and Weil (1989) and the growth rates of real housing prices in the model, and decompose changes in house prices into three structural components: housing supply shocks, shocks to basic housing demand, and shocks to housing-market-specific demand. We find that the main driver of the movements in house prices is housing-marketspecific demand shocks, and these are associated with beliefs regarding future house prices and the real estate market, as measured by the Consumer Sentiment Indices for the housing market, rather than credit conditions or financial variables such as interest rates or stock returns.

Keywords: House prices; Shocks to housing-market-specific demand; Beliefs; Credit conditions; Interest rate (search for similar items in EconPapers)
JEL-codes: E30 G10 R21 R30 R31 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-mac and nep-ure
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