Author(s)

Junhao Lai, Muyuan Liu, Jiayi Luo, Jingtian Shi, Yuehe Zhang

Corresponding Author

Yuehe Zhang

ABSTRACT

The Federal Reserve rate will affect the global financial system at least to some extent. Contemporarily, the actions implemented by Fed caused wide public concern. The importance of studying the alteration in the Federal Reserve rate is essential for foreseeing the changes in the interest rates, mortgage rates, and foreign exchange rates, etc. In this paper, the Fed's impact on housing prices in emerging Asian countries will be mainly discussed and demonstrated. Specifically, we illustrate the effects of different factors on house prices in terms of declining interest rates including purchase power, stock market, and speculators’ expectations to show how interest rates cause house prices to increase. The granger causality test was applied to prove if the house price index is influenced by the federal funds rate. According to the analysis, a small effect in the relationship between interest rates and house prices than hypothesized, and the research indicates that the cost of borrowing, stock prices, and speculators’ expectations all lead to a rise in house prices. However, based on some data, the relationship is weakly negative. Following previous literature, these studies state that the relationship is not generally considered as the strong negativity because of the various data, from the different countries, that research collects and analyses, which explains a weakly negative correlation between declining interest rates and rising house prices. These results shed light on how the policy in America influences certain indexes in other economies.

KEYWORDS

Federal funds rate, Asian EME, Monetary transmission, Interest rate, and House price