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Housing Markets, Regulations and Monetary Policy

Xiaojin Sun and Kwok Ping Tsang ()

Working Papers from Virginia Polytechnic Institute and State University, Department of Economics

Abstract: We apply the linearized present value model, which allows the log rent-price ratio to be decomposed into the expected present value of all future real interests rates, real housing premia, and real rent growth, to the housing market in 23 U.S. metropolitan areas from 1978 to 2011. Based on the indirect inference bias-corrected VAR estimates, we show that variation in the pricing error accounts for half of volatility of log rent-price ratio, and the remaining volatility is mainly contributed by the expected future real interest rates. In addition, a change in the real interest rate has an immediate impact on the fundamental house price, and the impact is significantly larger for more regulated housing markets.

Keywords: The Present Value Model; Rent-Price Ratio; House Price; Housing Supply Regulations (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2013
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