Time-Series Properties and Modelling of House Prices in Taipei Area: An Application of the Structural Time-series Model

Abstract

This paper analyses the unobserved components of Taipei house prices based on the Structural Time-series Model. It shows how stochastic and deterministic trends characterise long-run behaviour of Taipei house prices. Stochastic cycles were found in this price series around 2 and 7 years. Although Taipei housing market is though to have 7-year cycle, model suggests that the cycle is stochastic rather than deterministic. Using statistically specified unobserved components, we tested the long-run and short-run structural time-series house price models. These models all have good forecasting powers and acceptable diagnostic test statistics.