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Determinants of housing bubbles' duration in OECD countries

Author

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  • Juan S. Amador‐Torres
  • Jose E. Gomez‐Gonzalez
  • Sebastian Sanin‐Restrepo

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.

Suggested Citation

  • Juan S. Amador‐Torres & Jose E. Gomez‐Gonzalez & Sebastian Sanin‐Restrepo, 2018. "Determinants of housing bubbles' duration in OECD countries," International Finance, Wiley Blackwell, vol. 21(2), pages 140-157, June.
    • Handle: RePEc:bla:intfin:v:21:y:2018:i:2:p:140-157
    DOI: 10.1111/infi.12128
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    Cited by:

    1. Gomez-Gonzalez, Jose Eduardo & Sanin-Restrepo, Sebastian, 2018. "The maple bubble: A history of migration among Canadian provinces," Journal of Housing Economics, Elsevier, vol. 41(C), pages 57-71.
    2. Czerniak, Adam & Borowski, Jakub & Boratyński, Jakub & Rosati, Dariusz, 2020. "Asset price bubbles in a monetary union: Mind the convergence gap," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 288-302.
    3. Beatrice D. Simo-Kengne & Lumengo Bonga-Bonga, 2020. "House prices and fertility in South Africa: A spatial econometric analysis," Economics Bulletin, AccessEcon, vol. 40(4), pages 3193-3210.
    4. Peter C.B. Phillips & Shuping Shi, 2018. "Real Time Monitoring of Asset Markets: Bubbles and Crises," Cowles Foundation Discussion Papers 2152, Cowles Foundation for Research in Economics, Yale University.

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