| Summary: | This paper investigates the impact of interest rate on real estate market. It estimates the impact of interest rates upon house price movements from 1980 to 2008 across 16 countries. I employ static panel data model to estimate determinants of house prices using a across country panel dataset. I also take a novel analysis for the fundamental determinants of house prices. The results show that unemployment rate, the share of active population, real broad money, short-term interest rate and inflation rate are negatively associated with house prices, and real per capita GDP is positively correlated to house prices. In particular, the short-term interest rate elasticity of house prices is -13.75. This result indicates that short-term interest rates play very important role in house prices and hence have a large impact on real estate market.
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