Abstract
Abstract This study analyses the effects of oil price and macroeconomic shocks on the Malaysian housing market using a SVAR framework. The specification of the baseline model is based on standard economic theory. The Gregory-Hansen (GH) cointegration test reveals that there is no cointegration among the variables of interest. The results obtained from the Toda-Yamamoto (TY) non-Granger causality test show that oil price, labor force and inflation are the leading factors responsible for changes in the Malaysian housing prices. The findings from estimating generalized impulse response functions (IRFs) and variance decompositions (VDCs) indicate that oil price and labor force shocks are responsible for substantial fluctuations in the price of housing in Malaysia.
Highlights
The housing industry plays an eminent role in the economy in terms of employment, capital market, consumption and financial wealth and improved housing market performance stimulates the business cycle
Following the modeling approach described earlier, this study tested for the stability of the long run relationship between oil prices and housing price indices with the inclusion of three control variables: labor force, consumer price index (CPI) and lending rate
Since all the variables are I(1), this study investigated the presence of a cointegrating relationship under a structural shift between oil prices and housing prices, with the inclusion of labor force, lending rate and CPI, and computed modified versions of the cointegration ADF tests of Engle and Granger (1987), as well as modified Zt and Zα tests of Phillips and Ouliaris (1990)
Summary
The housing industry plays an eminent role in the economy in terms of employment, capital market, consumption and financial wealth and improved housing market performance stimulates the business cycle. Since housing is generally the single largest investment of households in most countries, volatilities in housing price might imply considerable changes in wealth, and bring about significant household wealth effects. In the recently released Global House Price Index in mid-2014, Malaysia was ranked 11th in the top 20 mainstream residential markets in the world. This prolonged growth in Malaysia’s house prices seem to indicate that the “housing bubble” that has devastated so many markets around the world has not affected this country
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