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An Analysis of the Jonsei and Purchase Prices in the Korean Housing Market

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http://www.scirp.org/journal/PaperInformation.aspx?PaperID=53209#.VLcnX8nQrzE

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ABSTRACT
The primary purpose of this paper is to construct and estimate an econometric model for the Jonsei-to-Purchase price ratio (JPR), and to draw implications for the development in the Korean housing market. In particular, we are interested in: a) identifying regimes across which the ratio shows markedly different dynamic behavior; and b) drawing implications from the model for the recent increases in the ratio. Estimation of the model for the period 1987:Q1-2011:Q3 confirms the presence of two different regimes: one with the zero trend in the JPR, and the other with positive trend. Furthermore, it is found that cyclical variations play nontrivial role only in the first regime, while the movements of the JPR in the other regime are mostly governed by the trend component. We also find that the cyclical deviations of the ratio from its trend are corrected, if any, by the changes in the future purchase price.
 
Cite this paper
Lim, G. (2015) An Analysis of the Jonsei and Purchase Prices in the Korean Housing Market. Modern Economy, 6, 81-89. doi: 10.4236/me.2015.61007.
 
References
[1]Cutts, A., Green, R. and Chang, Y. (2005) Did Changing Rents Explain Changing House Prices During the 1990s. American Real Estate and Urban Economics Association 2004 Annual Meetings, Washington DC, 3-5 January 2004, 25 p.
 
[2]Campbell, S.D., Davis, M.A., Gallin, J. and Martin, R.F. (2006) A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets. Federal Reserve Board, FEDS Paper 2006-29.
 
[3]Gallin, J. (2008) The Long-Run Relationship between House Prices and Rents. Real Estate Economics, 36, 251-276.
 
[4]Lee, Y.M. (2000) A Structural Change or a Foreboding of Price Increase? An Interpretation of the Rise in the Jonsei-to-Purchase Price Ratio (in Korean). Journal of the Korean Real Estate Analysis Association, 6, 9-22.
 
[5]Friedman, M. (1964) Monetary Studies of the National Bureau, the National Bureau Enters Its 45th Year. 44th Annual Report, New York, 7-25.
 
[6]Friedman, M. (1993) The Plucking Model’ of Business Fluctuations Revisited. Economic Inquiry, 31, 171-177. http://dx.doi.org/10.1111/j.1465-7295.1993.tb00874.x
 
[7]Kim, C. and Neslon, C. (1999) Friedman’s Plucking Model of Business Fluctuations: Tests and Estimates of Permanent and Transitory Components. Journal of Money, Credit and Banking, 31, 317-334. http://dx.doi.org/10.2307/2601114
 
[8]Hamilton, J.D. (1989) A New Approach to the Economic Analysis Nonstationary Time Series and the Business Cycle. Econometrica, 57, 35-84. http://dx.doi.org/10.2307/1912559                                     eww150115lx
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