Error Correction Dynamics of House Prices: an Equilibrium Benchmark

Charles Leung

MPRA Paper from University Library of Munich, Germany

Abstract: Central to recent debates on the "mis-pricing" in the housing market and the proactive policy of central bank is the determination of the "fundamental house price." This paper builds a dynamic stochastic general equilibrium (DSGE) model that produces reduced-form dynamics that are consistent with the error-correction models proposed by Malpezzi (1999) and Capozza et al (2004). The dynamics of equilibrium house prices are tied to the dynamics of the house-price-to-income ratio. This paper also shows that house prices and incomes should be co-integrated, and hence provides a justification of using co-integration tests to detect possible "mis-pricing" in the housing market.

Keywords: fundamental house price; error-correction model; cointegration; house price-to-income ratio; endogenous house price and income. (search for similar items in EconPapers)
JEL-codes: E30 O40 R30 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Related works:
Journal Article: Error correction dynamics of house prices: An equilibrium benchmark (2014)
Working Paper: Error correction dynamics of house prices: an equilibrium benchmark (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:55654

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