LIBOR and interest rate spread: sensitivities of the Australian housing market

Research output: Contribution to journalArticle

Abstract

This paper analyses the margin between the Cash Rate Target and LIBOR, and its relationship with house price variation in Australia. The research spans 24 years utilising monthly data to analyse the relationship between Australian house price and LIBOR/CRT spreads. Data are drawn from several sources before the time series is sub-divided into splines forming different stages of the housing market cycle. Models are developed based upon differencing the data and employing ADF tests for stationarity and examination via an Autoregressive Distributed Lag approach and Error Correction Model based data series. Results show there are various macroeconomic, financial and lending short-run dynamics which impact on house prices. Cointegration is also evident, which shows the LIBOR rate to comprise both a shot-run and long-run relationship with house prices. The margin between the CRT and LIBOR is less significant and is only observed in the short-run. The various approaches clearly exhibit the dynamism inherent between the wider macroeconomic and financial environment, which serves to highlight that different drivers affect the housing market at differing magnitudes and at different times. Nonetheless, both the short-run and long-run findings show GDP and LIBOR to be proponents for understanding the sensitivity of house prices in Australia.

LanguageEnglish
Pages73-99
Number of pages27
JournalPacific Rim Property Research Journal
Volume25
Issue number1
Early online date26 Apr 2019
DOIs
Publication statusE-pub ahead of print - 26 Apr 2019

Fingerprint

Housing market
House prices
Interest rate spread
Short-run
Margin
Macroeconomics
ADF test
Cash
Splines
Dynamism
Long-run relationship
Error correction model
Cointegration
Stationarity
Lending
Distributed lag

Keywords

  • LIBOR
  • house prices
  • spline analysis
  • ARDL
  • error correction
  • Causality
  • Spline analysis
  • House prices
  • Error correction

Cite this

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title = "LIBOR and interest rate spread: sensitivities of the Australian housing market",
abstract = "This paper analyses the margin between the Cash Rate Target and LIBOR, and its relationship with house price variation in Australia. The research spans 24 years utilising monthly data to analyse the relationship between Australian house price and LIBOR/CRT spreads. Data are drawn from several sources before the time series is sub-divided into splines forming different stages of the housing market cycle. Models are developed based upon differencing the data and employing ADF tests for stationarity and examination via an Autoregressive Distributed Lag approach and Error Correction Model based data series. Results show there are various macroeconomic, financial and lending short-run dynamics which impact on house prices. Cointegration is also evident, which shows the LIBOR rate to comprise both a shot-run and long-run relationship with house prices. The margin between the CRT and LIBOR is less significant and is only observed in the short-run. The various approaches clearly exhibit the dynamism inherent between the wider macroeconomic and financial environment, which serves to highlight that different drivers affect the housing market at differing magnitudes and at different times. Nonetheless, both the short-run and long-run findings show GDP and LIBOR to be proponents for understanding the sensitivity of house prices in Australia.",
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AB - This paper analyses the margin between the Cash Rate Target and LIBOR, and its relationship with house price variation in Australia. The research spans 24 years utilising monthly data to analyse the relationship between Australian house price and LIBOR/CRT spreads. Data are drawn from several sources before the time series is sub-divided into splines forming different stages of the housing market cycle. Models are developed based upon differencing the data and employing ADF tests for stationarity and examination via an Autoregressive Distributed Lag approach and Error Correction Model based data series. Results show there are various macroeconomic, financial and lending short-run dynamics which impact on house prices. Cointegration is also evident, which shows the LIBOR rate to comprise both a shot-run and long-run relationship with house prices. The margin between the CRT and LIBOR is less significant and is only observed in the short-run. The various approaches clearly exhibit the dynamism inherent between the wider macroeconomic and financial environment, which serves to highlight that different drivers affect the housing market at differing magnitudes and at different times. Nonetheless, both the short-run and long-run findings show GDP and LIBOR to be proponents for understanding the sensitivity of house prices in Australia.

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