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What Causes Asset Price Bubble in an Emerging Economy? Some Empirical Evidence in the Housing Sector of India

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  • Mantu Kumar Mahalik
  • Hrushikesh Mallick

Abstract

This study examines the dynamic causal relationships between house prices and their five determinants - real income, short-run real interest rates, real stock price index, real effective exchange rate, and real non-food bank credit - by using the quarterly data from 1996:Q1 to 2007:Q1 for India. Using the cointegration test and the vector error-correction model (VECM), the study finds that in the long run, real income significantly and positively influences the housing prices while real non-food bank credit adversely influences it. The variance decomposition results suggest that it is the shocks to the non-food bank credit that mainly explains the variability in housing prices, besides its own shocks being the most influential while other factors are not significant. This suggests that the role of credit availability as a supply side determinant cannot be underestimated in the dynamic behaviour of housing prices in emerging economies.

Suggested Citation

  • Mantu Kumar Mahalik & Hrushikesh Mallick, 2011. "What Causes Asset Price Bubble in an Emerging Economy? Some Empirical Evidence in the Housing Sector of India," International Economic Journal, Taylor & Francis Journals, vol. 25(2), pages 215-237.
    • Handle: RePEc:taf:intecj:v:25:y:2011:i:2:p:215-237
    DOI: 10.1080/10168737.2011.586806
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    References listed on IDEAS

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    2. Kholodilin, Konstantin A. & Ulbricht, Dirk, 2015. "Urban house prices: A tale of 48 cities," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-43.
    3. Sanjay Sehgal & Mridul Upreti & Piyush Pandey & Aakriti Bhatia, 2015. "Real Estate Investment Selection and Empirical Analysis of Property Prices: Study of Select Residential Projects in Gurgaon, India," International Real Estate Review, Global Social Science Institute, vol. 18(4), pages 523-566.
    4. Mallick, Hrushikesh & Mahalik, Mantu Kumar & Sahoo, Manoranjan, 2018. "Is crude oil price detrimental to domestic private investment for an emerging economy? The role of public sector investment and financial sector development in an era of globalization," Energy Economics, Elsevier, vol. 69(C), pages 307-324.
    5. Mikhail Stolbov & Maria Shchepeleva, 2023. "Sentiment-based indicators of real estate market stress and systemic risk: international evidence," Annals of Finance, Springer, vol. 19(3), pages 355-382, September.
    6. Konstantin A. Kholodilin, 2012. "Internet Offer Prices for Flats and Their Determinants: A Cross Section of Large European Cities," Discussion Papers of DIW Berlin 1212, DIW Berlin, German Institute for Economic Research.
    7. Hrushikesh Mallick & Mantu Kumar Mahalik, 2012. "Fundamental or speculative factors in the housing markets of emerging economies? Some lessons from China," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(1), pages 57-67, March.
    8. Rajesh Raj & Rath D.P., 2022. "House Price Convergence: Evidence from India [Convergence des prix des logements : le cas indien]," Working papers 893, Banque de France.
    9. Raj Rajesh & Deba Prasad Rath, 2023. "House price convergence: evidence from India," Asia-Pacific Journal of Regional Science, Springer, vol. 7(3), pages 721-747, September.
    10. Shang, Yunfeng & Han, Ding & Gozgor, Giray & Mahalik, Mantu Kumar & Sahoo, Bimal Kishore, 2022. "The impact of climate policy uncertainty on renewable and non-renewable energy demand in the United States," Renewable Energy, Elsevier, vol. 197(C), pages 654-667.
    11. Talat Munshi, 2020. "Accessibility, Infrastructure Provision and Residential Land Value: Modelling the Relation Using Geographic Weighted Regression in the City of Rajkot, India," Sustainability, MDPI, vol. 12(20), pages 1-16, October.

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