Nonlinear Influence of Apartment Housing Prices Uncertainty on Apartment Jeonse Prices

The purpose of this study is to examine the nonlinear relationship between apartment jeonse price index and volatilities of apartment housing prices in Korea. We adopt a logistic smooth transition autoregressive(LSTAR) model and use apartment housing price volatility as a transition variable. To do this, we utilize the apartment jeonse price index and apartment housing price index, while the sample period ranges from May 1995 to March 2022. In this paper, the EGARCH model is used to estimate apartment housing prices volatility due to the asymmetry of volatility. We find from the estimation results of nonlinearity that nonlinear models are more appropriate than linear models to capture the dynamic properties of apartment jeonse price index. In addition, the empirical result of the nonlinear LSTAR model shows that the apartment jeonse prices increase in a situation where apartment housing price uncertainty is high. In addition, when we examine the effect of the changes in interest rate on the jeonse prices, we found that the effect of interest rate is statistically insignificant in the LSTAR model, while the changes in interest rate affects the jeonse prices negatively in the linear model. Overall, our result suggests that for the stability of the apartment jeonse prices, it is necessary to minimize uncertainties in apartment housing prices.