Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?

Vance L Martin, Renee Fry, Nicholas Voukelatos

    Research output: Contribution to journalArticle

    Abstract

    A structural vector autoregression model is used to identify overvaluation in house prices in Australia from 2002 to 2008. An important feature is the development of a housing sector where long-run restrictions are derived from theory to identify housing demand and supply shocks. The results show strong evidence of overvaluation in real house prices, reaching a peak of just over 15 per cent by the end of 2003. Factors driving overvaluation are housing demand shocks before 2006 and post-2006 macroeconomic shocks. Wealth effects from equity markets are also important. The results suggest that monetary policy is not an important contributor to overvaluation of house prices.
    Original languageEnglish
    Pages (from-to)465-485
    JournalEconomic Record
    Volume86
    Issue number275
    DOIs
    Publication statusPublished - 2010

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