Inflation hedging characteristics of housing markets in Thailand

Abstract

Property has been traditionally perceived as a good hedge against inflation. Extensive empiri- cal researches have been undertaken to prove whether properties hedge against inflation in different countries. This paper explores the relationship between inflation and returns in the housing markets in Thailand. Only the appreciation component, not income, of housing market returns is taken into account due to the limitations of data. Inflation is decomposed into expected and unexpected inflation. As expected inflation is not directly observable, a proxy of expected inflation is required. This paper uses Treasury Bill rates and regression-generated time series, Autoregressive (AR) and Autoregressive Integrated Moving Average (ARIMA) modelling, to estimate expected inflation.