The Australian residential property market and monetary policy: a SVAR approach

Using 1992Q1-2014Q4 housing market, monetary policy and macroeconomic data for the Australian economy, this study investigates the dynamic impact of monetary policy on the Australian housing market. Considering number of purchased residential properties, dwelling investment and real estate prices as housing sector variables, the main objective of this study is to identify how households' or investors' purchasing decisions for residential properties and dwelling investment on new constructions and renovation of residential properties are influenced by the monetary policy shock, exchange rate and real estate prices shocks. To achieve the research goal, a seven-variable SVAR model is developed for the Australian housing market and the empirical findings of this study suggest that purchasing residential properties and dwelling investment are significantly and consistently influenced by the monetary policy shock but dynamic effect of exchange rate shocks on the number of purchased residential properties is insignificant. The interrelationship between monetary policy rate and purchasing residential properties is also acknowledged in this study.