Monetary transmission mechanism of the housing market in Korea : A VECM approach

The 2007 US subprime crisis had demonstrated that the impact of the housing market could be far-reaching. Most significantly, the catastrophe demonstrated that the housing sector forms an integral part of an economy and could definitely affect the economy drastically. In this paper, we investigate w...

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Main Authors: Chua, Chia Yei, Nan, Zhen Sheng
Other Authors: Chia Wai Mun
Format: Final Year Project
Language:English
Published: 2013
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Online Access:http://hdl.handle.net/10356/52106
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Institution: Nanyang Technological University
Language: English
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spelling sg-ntu-dr.10356-521062019-12-10T12:57:09Z Monetary transmission mechanism of the housing market in Korea : A VECM approach Chua, Chia Yei Nan, Zhen Sheng Chia Wai Mun School of Humanities and Social Sciences DRNTU::Social sciences::Economic theory The 2007 US subprime crisis had demonstrated that the impact of the housing market could be far-reaching. Most significantly, the catastrophe demonstrated that the housing sector forms an integral part of an economy and could definitely affect the economy drastically. In this paper, we investigate whether the monetary policy provides a means to remedy these variations in the housing market. This paper wishes to focus on the immediate East Asia region and, thus, finds that South Korea provides the most complete data set. Hence, it is chosen as the representative country to examine the housing market and monetary policy interactions. Data on the industrial production index, consumer price index, deposit rates and housing market prices are collected for the post-Asian financial crisis period to pre-US subprime crisis period. A Vector Error-Correction model is estimated to model the data. Then, the corresponding structural form is utilized to compute the Impulse Response Function following an interest rate shock. The Forecast Error Variance Decompositions of the different factors are also provided as supplementary evidence. Our results demonstrate that, indeed, monetary policy does offer a mean to rectify instabilities in the housing market. Furthermore, its effect are relatively short-term and has limited effect on output, these add to the appeal of using it as an adjustment policy. Bachelor of Arts 2013-04-22T08:15:25Z 2013-04-22T08:15:25Z 2013 2013 Final Year Project (FYP) http://hdl.handle.net/10356/52106 en Nanyang Technological University 35 p. application/pdf
institution Nanyang Technological University
building NTU Library
country Singapore
collection DR-NTU
language English
topic DRNTU::Social sciences::Economic theory
spellingShingle DRNTU::Social sciences::Economic theory
Chua, Chia Yei
Nan, Zhen Sheng
Monetary transmission mechanism of the housing market in Korea : A VECM approach
description The 2007 US subprime crisis had demonstrated that the impact of the housing market could be far-reaching. Most significantly, the catastrophe demonstrated that the housing sector forms an integral part of an economy and could definitely affect the economy drastically. In this paper, we investigate whether the monetary policy provides a means to remedy these variations in the housing market. This paper wishes to focus on the immediate East Asia region and, thus, finds that South Korea provides the most complete data set. Hence, it is chosen as the representative country to examine the housing market and monetary policy interactions. Data on the industrial production index, consumer price index, deposit rates and housing market prices are collected for the post-Asian financial crisis period to pre-US subprime crisis period. A Vector Error-Correction model is estimated to model the data. Then, the corresponding structural form is utilized to compute the Impulse Response Function following an interest rate shock. The Forecast Error Variance Decompositions of the different factors are also provided as supplementary evidence. Our results demonstrate that, indeed, monetary policy does offer a mean to rectify instabilities in the housing market. Furthermore, its effect are relatively short-term and has limited effect on output, these add to the appeal of using it as an adjustment policy.
author2 Chia Wai Mun
author_facet Chia Wai Mun
Chua, Chia Yei
Nan, Zhen Sheng
format Final Year Project
author Chua, Chia Yei
Nan, Zhen Sheng
author_sort Chua, Chia Yei
title Monetary transmission mechanism of the housing market in Korea : A VECM approach
title_short Monetary transmission mechanism of the housing market in Korea : A VECM approach
title_full Monetary transmission mechanism of the housing market in Korea : A VECM approach
title_fullStr Monetary transmission mechanism of the housing market in Korea : A VECM approach
title_full_unstemmed Monetary transmission mechanism of the housing market in Korea : A VECM approach
title_sort monetary transmission mechanism of the housing market in korea : a vecm approach
publishDate 2013
url http://hdl.handle.net/10356/52106
_version_ 1681038222258339840