Causality between housing returns, inflation and economic growth with endogenous breaks

This paper investigates the housing-macroeconomic nexus in Taiwan with endogenous structural breaks during 1991-2006. GDP and CPI are taken into consideration for examining the inflation hedging ability of Taiwan's housing returns and the contribution of the housing market to economic growth. The empirical results show that the growth of GDP actually affects inflation, but it does not cause the growth in housing returns. In particular, when taking the time trend into account, it is found that the effect of inflation on housing returns is negative and the effect of housing returns on inflation is positive. This evidence demonstrates the ineffectiveness of inflation hedging of Taiwan's housing during the period of study and the opportunistic characteristic of investors. In addition, the growth of the housing market is not beneficial for economic growth in the long-run, yet it leads to higher inflation in the short-run.