Template-Type: ReDIF-Paper 1.0
Author-Name: Efthymios Pavlidis
Author-Name-First: Efthymios
Author-Name-Last: Pavlidis
Author-Name: Alisa Yusupova
Author-Name-First: Alisa
Author-Name-Last: Yusupova
Author-Name: Ivan Paya
Author-Name-First: Ivan
Author-Name-Last: Paya
Author-Name: David Peel
Author-Name-First: David
Author-Name-Last: Peel
Author-Name: Enrique Martinez-Garcia
Author-Name-First: Enrique
Author-Name-Last: Martinez-Garcia
Author-Name: Adrienne Mack
Author-Name-First: Adrienne
Author-Name-Last: Mack
Author-Name: Valerie Crossman
Author-Name-First: Valerie
Author-Name-Last: Crossman
Title: Episodes of exuberance in housing markets
Abstract: After a prolonged period characterized by rapid real appreciation in house prices, there is now broad recognition of the severe correction in housing markets that followed as one of the causes of the 2008-09 global recession. We investigate the time series characteristics of three relevant price indicators of the housing market --real house prices, price-to-income, and price-to-rent ratios-- for the U.S. and 21 other countries during the period 1975Q1-2013Q2 (see Mack and Martínez-García (2011)) for evidence of explosive behavior as a plausible explanation for the boom and bust. The empirical detection of explosive behavior in house prices provides a precise timeline as well as empirical content to the narrative connecting the evolution of housing markets to the global recession; our rich cross-country dataset offers a novel international perspective. For testing and detection, we adopt a pair of novel techniques based on a right-tail variation of the standard Augmented Dickey-Fuller (ADF) test --the supremum ADF (SADF) (Phillips et al. (2011)) and the generalized SADF (GSADF) (Phillips et al. (2012) and Phillips et al. (2013))-- where the alternative hypothesis is of a mildly explosive process (even periodically collapsing with the GSADF test) behavior within sample. Statistically significant periods of exuberance are found in most countries, with our empirical estimates suggesting an unprecedented synchronization across countries preceding the global recession. The boom in housing begins during the late 90s in the U.S. spreading to most countries by the early 2000s, until it bursts for most during 2007-08 as the impact on economic activity was being felt. In this regard, our findings corroborate the narrative of the 2008-09 global recession. In this paper, we also discuss more generally the use of these procedures to monitor international housing markets and as a warning signal.
Creation-Date: 2014
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/ExuberanceHousingMarkets.pdf
File-Format: application/pdf
Number: 64908732
Classification-JEL: 
Keywords: House prices, 2008-09 Global Recession, Timeline, Unit-root Tests, Mildly Eexplosive Time Series, Sup ADF test, Generalized sup ADF test, Periodically Collapsing Bubbles
Handle: RePEc:lan:wpaper:64908732