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Housing market dynamics in a small open economy: Do external and news shocks matter?

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  • Ng, Eric C.Y.
  • Feng, Ning

Abstract

We study the sources of fluctuations in the housing market of a small open economy. We use an estimated dynamic stochastic general equilibrium (DSGE) model and data from seven small open economies to assess the quantitative effects of both contemporaneous and news shocks to domestic and external fundamentals on housing market dynamics. External shocks and news shocks have significant effects. Cyclical fluctuations in housing prices and housing investment are mainly driven by contemporaneous shocks related to foreign housing preferences and terms of trade, and by news shocks related to domestic consumption-goods technology, housing preferences and terms of trade. The spillover effects of external shocks on housing prices are notably larger than those of domestic shocks.

Suggested Citation

  • Ng, Eric C.Y. & Feng, Ning, 2016. "Housing market dynamics in a small open economy: Do external and news shocks matter?," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 64-88.
    • Handle: RePEc:eee:jimfin:v:63:y:2016:i:c:p:64-88
    DOI: 10.1016/j.jimonfin.2016.01.005
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    Cited by:

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    2. Rangan Gupta & Xiaojin Sun, 2020. "Housing market spillovers in South Africa: evidence from an estimated small open economy DSGE model," Empirical Economics, Springer, vol. 58(5), pages 2309-2332, May.
    3. Lenhle Dlamini & Harold Ngalawa, 2022. "Macroprudential policy and house prices in an estimated Dynamic Stochastic General Equilibrium model for South Africa," Australian Economic Papers, Wiley Blackwell, vol. 61(2), pages 304-336, June.
    4. Clancy, Daragh & Merola, Rossana, 2017. "Countercyclical capital rules for small open economies," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 332-351.
    5. Epstein, Brendan & Finkelstein Shapiro, Alan & Gonzalez Gomez, Andres, 2018. "Firm Dynamism and Housing Price Volatility," MPRA Paper 88694, University Library of Munich, Germany.
    6. Akbobek Akhmedyarova, 2023. "Housing Market Dynamics in Kazakhstan: An Estimated DSGE Model," International Real Estate Review, Global Social Science Institute, vol. 26(3), pages 422-464.
    7. Mustafa Ozan Yıldırım & Mehmet İvrendi, 2021. "Turkish Housing Market Dynamics: An Estimated DSGE Model," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 15(2), pages 238-267, May.
    8. Bauer, Gregory H., 2017. "International house price cycles, monetary policy and credit," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 88-114.
    9. Suh, Hyunduk, 2023. "Regionally heterogeneous housing cycles and housing market stabilization policies: Evidence from Korea," Economic Modelling, Elsevier, vol. 120(C).
    10. Sean Langcake & Tim Robinson, 2018. "Forecasting the Australian economy with DSGE and BVAR models," Applied Economics, Taylor & Francis Journals, vol. 50(3), pages 251-267, January.

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    More about this item

    Keywords

    Housing market dynamics; Housing price; Housing investment; Small open economy; External shocks; News shocks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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