What can an Open-Economy DSGE Model Tell Us About Hong Kong’s Housing Market?

Funke, Michael; Paetz, Michael

doi:10.2139/ssrn.1713186

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What can an Open-Economy DSGE Model Tell Us About Hong Kong’s Housing Market?

BOFIT Discussion Paper No. 19/2010

45 Pages Posted: 23 Nov 2010

See all articles by Michael Funke

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Michael Paetz

University of Hamburg

Date Written: November 19, 2010

Abstract

This paper develops an open-economy DSGE model with a housing-market sector and a borrowing constraint. Contrary to standard conventions, domestic households are allowed to invest in foreign housing and vice versa. Using Bayesian methods, the model is applied to data for Hong Kong. The results show that Hong Kong’s housing market is quite open to foreign investment, and perhaps more significantly, that variations in the loan-to-value ratio and housing preference shocks largely explain business cycle volatility.

Keywords: DSGE models, housing, open economy, Hong Kong

JEL Classification: D91, E21, E44, F41

Suggested Citation: Suggested Citation

Funke, Michael and Paetz, Michael, What can an Open-Economy DSGE Model Tell Us About Hong Kong’s Housing Market? (November 19, 2010). BOFIT Discussion Paper No. 19/2010, Available at SSRN: https://ssrn.com/abstract=1713186 or http://dx.doi.org/10.2139/ssrn.1713186