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House Price Bubble Estimations in Australia’s Capital Cities with Market Fundamentals

Author/s: Heng Jiang, Yu Song, Chunlu Liu

Date Published: 1/01/2011

Published in: Volume 17 - 2011 Issue 1 (pages 132 - 156)

Abstract

This paper investigates the existence of house price bubbles in Australia’s eight capital cities in recent years by using quantitative analyses including Johansen cointegration test, Granger causality test, impulse response and Chow forecast test. While interactions between house prices and market fundamentals are discussed in long-run and causal estimations, shocks from the market fundamentals to house prices are investigated in generalized impulse response analyses. Findings from estimating house price bubbles for eight capital cities suggest that there was an obvious house price bubble in Perth, while a slight house price bubble occurred in Sydney. In contrast, house prices in Adelaide and Darwin can be explained very well by market fundamentals, while house prices in Melbourne, Brisbane, Hobart and Canberra were undervalued in the study period.

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Keywords

Cointegration Test - Granger Causality - House Price Bubble - Impulse Response

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