An interdependence analysis of Australian house prices using variance decomposition

Purpose – The purpose of this paper is to analyse the interdependencies of the house price growth rates in Australian capital cities. Design/methodology/approach – A vector autoregression model and variance decomposition are introduced to estimate and interpret the interdependences among the growth rates of regional house prices in Australia. Findings – The results suggest the eight capital cities can be divided into three groups: Sydney and Melbourne; Canberra, Adelaide and Brisbane; and Hobart, Perth and Darwin. Originality/value – Based on the structural vector autoregression model, this research develops an innovative interdependence analysis approach of regional house prices based on a variance decomposition method.