A Study on the Interaction between House Prices and the Real Economy in Korea (in Korean)

In this paper, we identify the main features of the Korean housing cycle by disentangling the relative importance of unobserved factors driving the fluctuations of house prices. We also analyze the interrelation between the housing sector and the macroeconomic conditions. Our main findings can be summarized as follows. First, Korea's house prices have been mainly driven by the local (region- or city-specific)component. Namely, in the Seoul Metropolitan Area (henceforth, SMA), the region-specific features are more important than the city-specific features. In the non-SMA, the latter is more important. Secondly, we find that the impacts of interest rate and output shocks on house prices could be different depending on the origin of the shocks. Interest rate shocks driven either by the market or monetary policy have a significantly negative impact on house prices. However, the monetary policy alone cannot be the main driver of the house prices fluctuations. In addition, while output shocks causing the interest rates to fall tend to increase house prices, output shocks increasing the interest rates might decrease house prices. Finally, the housing sector disturbances are less important in the development of Korea's business cycle than in other major countries. However, since housing demand shocks affects consumption and private credit, there may exist collateral and wealth effects of house prices in Korea.