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Analyzing Dynamic Connectedness in Korean Housing Markets

So Jung Hwang and Hyunduk Suh
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So Jung Hwang: Department of Economics, Inha University

No 2018-4, Inha University IBER Working Paper Series from Inha University, Institute of Business and Economic Research

Abstract: Connectedness in housing markets can bea source of macro-financial systemicrisk. This study investigates regional housing market connectedness among 16 first-tier administrative divisionsin Koreaand 25 districtsin Seoul, the capital city. Connectedness is defined as in Diebold and Yilmaz (2014) and the time-varying parameter vector autoregressive model is used to capture its time-varying nature. The estimation results show that rapid increases in connectedness during the sample period are mostly associated with housing booms rather than downturns. Moreover, connectedness cycles for the whole country and for Seoul seem to diverge after the global financial crisis, just as their housing price cycles do. Cross-sectionally, as expected, Seoul and the surrounding Gyeonggi province have a strong influence on the connectedness network, especially during the 2006 connectedness surge episode. The influence of Gangnam-3 districts is not significantly high in either the 2006 or the 2017 connectedness surge episodes, but tends to lead the total connectedness index by a few months.

Keywords: Korean housing market; Diebold-Yilmaz connectedness index; time-varying parameter vector autoregression (search for similar items in EconPapers)
JEL-codes: E44 E58 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-ure
Date: 2018-09
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