Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles

Qin Xiao and Randolph Gee Kwang Tan
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Randolph Gee Kwang Tan: Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore

No 601, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Since Flood and Garber (1980), the debate surrounding speculative bubbles has never subsided. A key obstacle to resolve this issue is the identification problem. A bubble is usually inferred from some assumed fundamental determinants of a price. These assumptions could be over-simplified. Furthermore, there might be data measurement errors. In this paper, we attempt to capture such errors with a latent state variable. This variable is extracted with Kalman filter. Based on our empirical comparisons, we find that it is possible to attribute the observed large price swings in the property market of Hong Kong during the 1980s and 1990s to a periodically collapsing rational speculative bubble.

Keywords: rational speculative bubble; misspecification or measurement error; Kalman filter (search for similar items in EconPapers)
JEL-codes: C12 C13 C52 G12 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2006-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:nan:wpaper:0601

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