The Interaction of Housing Cycles with the Wider Economy in New Zealand: An Analysis of Filtering Methods and Cycles

Yuan, Shuhui
Vermeulen, Philip
Galimberti, Jaqueson
Item type
Degree name
Master of Business
Journal Title
Journal ISSN
Volume Title
Auckland University of Technology

The aim of this study is to investigate the cyclical co-movement of house prices with the construction sector, the credit cycle, and economic activity in New Zealand. I seek to find both the relationships between the cycles and if the choice of filtering method matters. The filters I have chosen to evaluate are the Hodrick-Prescott and the Christiano-Fitzgerald filters. I also performed a cross-correlation analysis to find the possible leads and lags in the relationships. I find a relationship between the cyclical components between house price and all the variables I choose. Furthermore, I find that the choice of filtering method does influence the result. The Hodrick-Prescott and the Christiano-Fitzgerald filter provide a significantly different cyclical component for house prices and private sector credit. However, the choice of filtering method has less impact on the construction sector, mortgage rate, GDP, and the unemployment rate. Nevertheless, the most significant cyclical relationship is found between house prices and building consents, with house prices either leading or lagging. I also find evidence of a two-way relationship between house prices and mortgage rates.

Publisher's version
Rights statement