Sources of Housing Price Fluctuations: An Analysis Using Sign-restricted VAR

Abstract

This article investigates the role of potential disturbances behind the housing market fluctuations in Korea using a VAR model with sign-restriction. Specifically, we identify four structural shocks, namely, i) monetary policy shock, ii) lending shock, iii) housing market shock, and iv) expectations shock, and estimate their effects on housing price and other macro variables. The overall results from impulse responses and forecast error variance decomposition indicate that development in housing sectors is closely interrelated to other macro variables/factors, including monetary policy. When we decompose the historical contribution of each shock for the actual time series movements in housing price, non-monetary policy shocks, such as lending shock and housing market shock, seem to be mainly accountable for since 2000. In this time period, loose monetary policy also partly contributed, whose role seems to be relatively minor however.