Date of Award
Master of Science (MS)
Economics & Finance
This paper studies if the Hong Kong housing market from 1993:Q1 to 2016:Q2 can be explained by money illusion. When people suffer from money illusion, a drop in inflation can lead to a high increase in housing prices since they mistakenly believe that inflation lowers the real interest rate, and the future fixed nominal mortgage payments in the real cost are underestimated. Unlike the supportive evidence of money illusion on the UK housing market found by Brunnermeier and Julliard (2007), no empirical link was found between inflation and the estimated mispricing term (implied irrational component) of the price-rent ratio in the Hong Kong housing market. Money illusion may not be universal and more efforts are required to explain the housing market in each country.
Ho, Stephanie, "Can Money Illusion Effect Explain Hong Kong Housing Market?" (2017). Theses and Dissertations. 2116.