Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea / Dongchul Cho.

Format:

Book

Author/Creator:

Cho, Dongchul.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11054.

NBER working paper series no. w11054

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Interest Rate, Inflation, and Housing Price

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

This paper discusses the relationship between interest rate and inflation rate on one part and the house price relative to chonsei price (up-front lump-sum deposit from the tenant to the owner for the use of the property with no additional requirement for periodic rent payments) on the other. The key point of the paper is that the relative price of sales to chonsei depends on the ratio of inflation to real interest rate, and thus even when the monetary authority maintains a pre-announced target level of inflation rate, the relative price of sales to chonsei rises if the real interest rate is lowered. This finding seems to help understand the recent hikes of the house prices despite the stabilizing chonsei prices. Recognizing this relationship, it may be sensible to lower the target inflation rate in an economy where real interest rates permanently decline, if the society wishes to reduce its adverse effect on the wealth distribution between house owners and chonsei tenants.

Notes:

Print version record

January 2005.