Housing Price and Fundamentals in a Transition Economy: The Case of the Beijing Market
69 Pages Posted: 25 Sep 2015 Last revised: 26 Mar 2017
Date Written: September 23, 2015
This paper develops a dynamic rational expectations general equilibrium framework that links house value to fundamental economic variables such as income growth, demographics, migration and land supply. Our framework is general and can handle non-stationary dynamics as well as structural changes in fundamentals that are commonplace in transition economies. Applying the framework to Beijing, we find that the equilibrium house price and rent under reasonable parametrizations of the model are substantially lower than the data. We explore potential explanations for the discrepancies between the model and the data.
Keywords: housing price, fundamentals, transition economy, dynamic equilibrium, life-cycle overlapping generations model
JEL Classification: E20, E30, R10, R13, R21, R31
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