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Housing and Commodity Investment Booms in a Small Open Economy
Author(s) -
Gibbs Christopher G.,
Hambur Jonathan,
Nodari Gabriela
Publication year - 2021
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.12590
Subject(s) - boom , commodity , economics , investment (military) , inflation (cosmology) , monetary economics , small open economy , price shock , macroeconomics , labour economics , market economy , monetary policy , physics , environmental engineering , politics , theoretical physics , political science , law , engineering
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.