Stabilizer or multiplier: The manifestation of theoretical policy effect on the house prices

Abstract

This paper employs Jorda’s (2005) local projection (LP) methodology to assess the impact of macroeconomic policies on apartment prices pre-and post-COVID-19. It contemplates the economic linkages to estimate the multiplier effects of the monetary and fiscal shocks as they are transmitted to the apartment prices through the so-called COVID proxies. This paper introduces a reduced number of economic proxies that substantially explain the impact of the COVID-19 pandemic on aggregate production in South Korea: unemployment; oil prices; uncertainties. I use these COVID proxies that are exogenously given, as a set of channels through which the transmission paths of the macroeconomic policies linked towards the apartment prices are misaligned with the desired paths. The LP model provides a reasonably good explanation to the varying effects of financial shocks pre-and post-COVID-19 by predicting the state-dependent impulse responses. The impulse responses suggest that the monetary multipliers on apartment prices are larger and more significant during the COVID-19 crisis than during normal times, while it is vice versa in terms of fiscal multipliers.