Determinants of housing bubbles' duration in OECD countries

Juan S. Amador‐Torres, Jose E. Gomez‐Gonzalez and Sebastian Sanin‐Restrepo
Authors registered in the RePEc Author Service: J. Sebastián Amador-Torres (), Sebastian Sanin Restrepo, Sr. and Jose Gomez-Gonzalez

International Finance, 2018, vol. 21, issue 2, 140-157

Abstract: We study the determinants of housing price bubbles' duration for a set of OECD countries between 1970 and 2015. Our topic of study is of major importance, as duration is a proxy for other dimensions, such as the magnitude of bubbles, the extent of macroeconomic imbalances, and the chance that a rational bubble turns into an irrational one. We answer two related questions: (i) Does prolonged domestic monetary‐policy easing increase the duration of housing price bubbles? (ii) Does prolonged monetary‐policy easing in the United States influence the housing bubbles' duration in other OECD countries? We show that the answer to the first question is a clear yes but that the answer to the second question is not as clear. Our main result is that monetary‐policy tightening can accelerate the termination of a housing bubble. In this sense, our findings provide support for ‘leaning against the wind’ policies.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:21:y:2018:i:2:p:140-157

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