Leung, Charles Ka YuiCharles Ka YuiLeungDr. TANG Chi Ho, EdwardEdwardDr. TANG Chi Ho2022-04-212022-04-212023Contemporary Economic Policy, Jan. 2023, Vol. 41(1), pp. 61-78.1465-728710743529http://hdl.handle.net/20.500.11861/7051The house price-to-income ratio (PIR) is widely used as an affordability indicator. This paper complements the cross-sectionally focused literature by proposing a tractable model for the PIR dynamics. Our model predicts that the PIR is very persistent and is correlated to the lagged aggregate output. Cross-country analysis confirms this prediction and provides evidence for a long-term, positive, and significant relationship between PIR and aggregate production. Our results hint at the construction of an early warning system for housing market mispricing. Our tractable formulation of a stochastic money growth rule may carry independent research interest.enPeer Reviewed Journal Article10.1111/coep.12538