The property prices (including residential properties) in Australia has hit a peak in 2017 and started to decline ever since. As of January 2019, in Sydney, housing prices were 13 per cent lower than their July 2017 peak. In the meantime, the interest rate in Australia has been at its lowest at 1.5 percent since August 2016. Externally, there was been a slowdown of Chinese economy lately which negatively affected external demand for Australia’s resource exports. In addition, trade tensions have remained a continued source of uncertainty for the global growth outlook in 2019 and 2020. Discuss the channels by which the property price bust may have implications for macroeconomicvariables of interest to policy makers (for example, output, unemployment, the exchange rate, and thecurrent account balance). Do you think that the current fiscal and monetary policy stances areappropriate to tackle the issues? What policies would you recommend going forward, and what are thepotential drawbacks of these policies? (You can assume that property prices will continue to decline for the next 2-3 years.)
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