Explosive dynamics in house prices? An exploration of financial market spillovers in housing markets around the world

Enrique Martínez-García and Valerie Grossman
Authors registered in the RePEc Author Service: Enrique Martínez García ()

Journal of International Money and Finance, 2020, vol. 101, issue C

Abstract: Asset prices in general, and real house prices in particular, are often characterized by a nonlinear data-generating process which may display at times mildly explosive behavior. In this paper, using the recursive (right-tailed) unit root test methodology proposed by Phillips et al. (2015a,b), we find widespread evidence of episodes of explosiveness (or exuberance) in international real house prices and establish a timeline of such episodes for a panel of 23 countries between first quarter 1975 and fourth quarter 2015. Motivated by theory, we adopt a dynamic panel logit/probit framework to empirically investigate whether macro fundamentals—and, more specifically, financial variables—help predict such episodes of exuberance in international real house prices. We find that interest rate spreads and real stock market growth together with standard housing fundamentals (growth in real personal disposable income per capita and inflation) are, indeed, among the best predictors. Furthermore, we argue that financial developments in other asset markets can play a significant role as a trigger in the emergence of explosiveness in housing markets.

Keywords: Financial spillovers; Mildly explosive time series; Right-tailed unit-root tests; Dynamic panel logit model; International housing markets (search for similar items in EconPapers)
JEL-codes: C22 G12 R30 R31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Explosive Dynamics in House Prices? An Exploration of Financial Market Spillovers in Housing Markets Around the World (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:101:y:2020:i:c:s0261560618305813

DOI: 10.1016/j.jimonfin.2019.102103

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