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Housing and Commodity Investment Booms in a Small Open Economy

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  • Christopher G. Gibbs
  • Jonathan Hambur
  • Gabriela Nodari

Abstract

We add a housing sector to the Reserve Bank of Australia's small open‐economy model to explore the effect of commodity price shocks on housing investment. The model predicts that housing investment booms may follow commodity booms. Commodity booms have a persistent effect on housing services price inflation and they ‘crowd out’ housing investment. When the commodity boom ends, the combination of higher prices and falling interest rates induces a significant housing investment response. The model attributes a significant share of the recent increase in housing investment in Australia directly to falling commodity prices.

Suggested Citation

  • Christopher G. Gibbs & Jonathan Hambur & Gabriela Nodari, 2021. "Housing and Commodity Investment Booms in a Small Open Economy," The Economic Record, The Economic Society of Australia, vol. 97(317), pages 212-242, June.
    • Handle: RePEc:bla:ecorec:v:97:y:2021:i:317:p:212-242
    DOI: 10.1111/1475-4932.12590
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    Cited by:

    1. James Graham & Alistair Read, 2023. "House Prices, Monetary Policy and Commodities: Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 99(324), pages 1-31, March.
    2. Isaac Gross & Andrew Leigh, 2022. "Assessing Australian Monetary Policy in the Twenty‐First Century," The Economic Record, The Economic Society of Australia, vol. 98(322), pages 271-295, September.

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