An interdependence analysis of Australian house prices using variance decomposition

Abstract

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.