lewiskyh / bsc-economics-dissertation

Abstract

This dissertation uses a Vector Error Correction Model of Hong Kong housing prices to investigate whether the high prices are driven by fundamental macroeconomic variables. Real interest rate has the strongest long-run effect on the housing prices. Construction cost and land supply have weaker long-run effects on the housing prices. The long-run effect of real per capita income is statistically insignificant. The housing prices respond positively to shocks of real per capita income and domestic credit, but respond negatively to shocks of real interest rate and construction cost. The response of the house prices to land supply is insignificant. The VECM also forecasts a rising trend of the housing prices. Policy makers should take into account the long and short run effects of the macroeconomic variables when designing housing policies to alleviate the housing problem. Despite the significant estimation results, model issues that can be corrected to enhance the results are discussed.

Final score: 70% (first-class)