Explosive bubbles in house prices? Evidence from the OECD countries

Tom Engsted, Simon J. Hviid and Thomas Pedersen ()

Journal of International Financial Markets, Institutions and Money, 2016, vol. 40, issue C, 14-25

Abstract: We conduct an econometric analysis of bubbles in housing markets in the OECD area, using quarterly OECD data for 18 countries from 1970 to 2013. We pay special attention to the explosive nature of bubbles and use econometric methods that explicitly allow for explosiveness. First, we apply the univariate right-tailed unit root test procedure of Phillips et al. (2015) on the individual countries' price-rent ratio. Next, we use Engsted and Nielsen's (2012) co-explosive VAR framework to test for bubbles. We find evidence of explosiveness in many housing markets, thus supporting the bubble hypothesis. However, we also find interesting differences in the conclusions across the two test procedures. We attribute these differences to how the two test procedures control for cointegration between house prices and rent.

Keywords: Co-explosive VAR model; Right-tailed unit root tests; Date-stamping bubble periods; Price-to-rent ratio (search for similar items in EconPapers)
JEL-codes: C22 C32 G12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (66)

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Working Paper: Explosive bubbles in house prices? Evidence from the OECD countries (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:40:y:2016:i:c:p:14-25

DOI: 10.1016/j.intfin.2015.07.006

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