Policy Study Inflation Expectations Through the Lens of the Slack in the Real Estate Asset Market December 30, 2023

Series No. 2023-02
December 30, 2023
- Summary
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This study examines inflation expectations implied in the real estate asset market. Land is an asset that accounts for more than half of South Korea's national wealth and, like labor, is an essential input factor despite its inelastic supply. Based on this idea, we examine whether a similar regularity as the Phillips curve observed in the labor market is also observed in the real estate asset market. The main results are as follows. First, an increase in the relative price of land can be a pass-through, transferring inflationary pressure over the years. Second, comparing the existing expected inflation indices, an expected inflation rate extracted from the real estate asset market can provide additional information. Third, theoretical analysis shows that the relative price of land and expected inflation can be positively correlated in general equilibrium.
- Contents
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Preface
Executive Summary
Chapter 1 Introduction
Chapter 2 The Correlation Between Real Estate Asset Markets and Inflation
Section 1 The Relative Value of Real Estate Assets as a Multiplier of National Wealth relative to Gross Domestic Product,
Section 2 Visual Cues
Chapter 3 The Relative Value of Real Estate Assets as a Proxy for Inflation Expectations
Section 1 Prediction and Explanatory Power for Future Inflation
Section 2 The Consistency with the New Keynesian Phillips Curve Considering Inflation Expectations
Section 3 Consumption and its Impact on Inflation
Chapter 4 Theoretical Discussion
Section 1 Real Estate Asset Prices, Household Credit, and the Quantity Theory of Money
Section 2 Real Estate Asset Market Equilibrium Conditions and Inflation Expectations
Chapter 5 Concluding Remarks
References
Appendix
ABSTRACT
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