Do Asymmetric Causal Relationships Exist between Macroeconomic Variables and Housing Returns in Taiwan?

This study uses the unexpected stock return as the threshold variable to proxy for the business cycle and construct the threshold vector error correction model (TVECM) to examine whether an asymmetric causal relationship exists between the housing return and four macroeconomic variables, namely, inflation, the interest rate change, the stock return, and industrial production in Taiwan. First, the cointegration analysis shows that there is a stable relationship between the housing price and macroeconomic variables. Secondly, the TVECM results show that, during an expansion, all four macroeconomic variables have an insignificant effect on the housing return. However, during a recession, inflation has a positive effect and the interest rate change a negative effect on the housing return. Nevertheless, the effect of industrial production on the housing return is insignificant. Finally, our results support the asymmetric causality between the housing return and these four macroeconomic variables. Our conclusions also prove that an effective inflation hedge exists, that reflects the monetary shock and stock market haven of Taiwan's housing investment.