Department of Economics and Business Economics

Explosive bubbles in house prices? Evidence from the OECD countries

Research output: Working paperResearch

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  • rp15_01

    Submitted manuscript, 640 KB, PDF document

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. (2012) 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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages24
Publication statusPublished - 13 Jan 2015
SeriesCREATES Research Papers
Number2015-01

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