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House-Price Crash and Macroeconomic Crisis: A Hong Kong Case Study

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  • E32 - Business Fluctuations
  • Cycles
  • E44 - Financial Markets And The Macroeconomy
  • E37 - Forecasting And Simulation: Models And Applications
  • Economics


House prices crash has become an important feature of macroeconomic crisis. We argue that house prices crash driven by contractionary monetary policy is not only a reaction to crisis, but also accelerates and amplifies the fluctuations of major macroeconomic variable. In this paper, we conduct a case study of Hong Kong in the 1997-1998 financial crisis and quantitatively analyze the mechanism by developing a general equilibrium model incorporating financial accelerator mechanism into both household and entrepreneur sectors. After estimating and simulating the model, impulse response results imply that our model can explain the co-movement of house prices, consumption, and investment better than the alternative models.

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