Identification and Critical Time Forecasting of Real Estate Bubbles in the U.S.A and Switzerland

Diego Ardila, Dorsa Sanadgol, Peter Cauwels and Didier Sornette
Additional contact information
Diego Ardila: ETH Zurich
Dorsa Sanadgol: ETH Zurich
Peter Cauwels: ETH Zurich
Didier Sornette: ETH Zurich and Swiss Finance Institute

No 14-44, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We present a hybrid model for diagnosis and critical time forecasting of real estate bubbles. The model combines two elements: 1) the Log Periodic Power Law (LPPL) model to describe endogenous price dynamics originated from positive feedback loops between economic agents; and 2) a diffusion index method that creates a parsimonious representation of multiple macroeconomic variables. We examine the behavior of our model on the housing price indices of 380 US metropolitan areas, using 15, 35, and 90 national-level macroeconomic time series and a dynamic forecasting methodology. Empirical results suggests that the model is able to forecast the end of the bubbles and to identify variables highly relevant during the bubble regime. In addition, the same methodology is applied to the national housing price index of Switzerland, diagnosing a bubble in which global imbalances and Switzerland's status as a safe haven seem to be playing a dominant role.

Keywords: real-estate bubbles; USA and Switzerland; diffusion index; forecasting; log-periodic power law; criticality; positive feedback; sparse partial least squares (search for similar items in EconPapers)
JEL-codes: C12 C22 C52 G01 G17 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2014-07
New Economics Papers: this item is included in nep-for and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ssrn.com/abstract=2465000 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1444

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().