Housing and Commodity Investment Booms in a Small Open Economy. Issue 317 (6th April 2021)

• Record Type: Journal Article
• Authors: Gibbs, Christopher G.; Hambur, Jonathan; Nodari, Gabriela
• Is Part Of: Economic record. Volume 97:Issue 317(2021)
• Page Start: 212
• Page End: 242
• Publication Date: 2021-04-06
• Subjects: Australia -- Economic conditions -- Periodicals; 330.99
• DOI: 10.1111/1475-4932.12590
• Languages: English
• ISSNs: 0013-0249

Abstract

Abstract : We add a housing sector to the Reserve Bank of Australia's small open‐economy model to explore the effect of commodity price shocks on housing investment. The model predicts that housing investment booms may follow commodity booms. Commodity booms have a persistent effect on housing services price inflation and they 'crowd out' housing investment. When the commodity boom ends, the combination of higher prices and falling interest rates induces a significant housing investment response. The model attributes a significant share of the recent increase in housing investment in Australia directly to falling commodity prices.