A Time Series Analysis of Housing Prices, Monetary Policy, and Stock Market in Pakistan

This study analyses the relationship between monetary policy and housing prices in Pakistan. It also includes factors such as the stock market index and inflation, in addition to interest rates and housing prices, during the years 2016 to 2021. The dependent variable is housing prices, and the independent variables are the discount rate, inflation and the stock market index. These relationships are analysed in the study using the Vector Error Correction Model (VECM). Findings indicate that monetary policy cannot reduce housing prices in the short term. A short-term, positive, and unidirectional link exists between interest rates and house prices in the Pakistani context. Moreover, inflation has a short-term negative impact on house prices. Further, a bidirectional causation is found between home prices and inflation in Pakistan. Moreover, the stock market index in Pakistan has a long-term, unidirectional negative correlation with the housing prices in Pakistan. The study highlights the relationship between inflation and housing prices, providing valuable implications for policymakers and investors in emerging markets, particularly in the context of Pakistan's real estate sector.