Advanced Search
MyIDEAS: Login

Testing for rational bubbles in the US housing market

Contents:

Author Info

  • Kivedal, Bjørnar Karlsen

Abstract

The presence of a bubble in the US housing market prior to the 2007 subprime mortgage financial crisis is investigated. This is done by looking into the relationship between house prices and rental prices, known as the price–rent ratio, which is an important measure of a potential deviation between house prices and its fundamental value. Additionally, the interest rate is taken into account since it is an important factor in determining demand for housing mortgages and thereby influencing house prices, and explosive behavior of house prices is considered. These relationships are investigated through a theoretical and econometrical framework. The empirical evidence suggests that there was a bubble in the housing market prior to the financial crisis, even when controlling for the decreasing interest rate and the fundamental information given by the rental price in the period. Explosiveness was the main source of the price increase, such that a bubble was present in the housing market after correcting for other fundamental factors. The econometric procedures used in the analysis may therefore be relevant for monitoring the housing market.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0164070413001432
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 38 (2013)
Issue (Month): PB ()
Pages: 369-381

as in new window
Handle: RePEc:eee:jmacro:v:38:y:2013:i:pb:p:369-381

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Rational bubbles; Price-rent ratio; House prices; Cointegration; Vector autoregression;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Robert J. Shiller, 2007. "Understanding recent trends in house prices and homeownership," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 89-123.
  2. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
  3. Tom Engsted & Bent Nielsen, 2010. "Testing for rational bubbles in a co-explosive vector autoregression," CREATES Research Papers 2010-25, School of Economics and Management, University of Aarhus.
  4. Alan Greenspan & James Kennedy, 2007. "Sources and uses of equity extracted from homes," Finance and Economics Discussion Series 2007-20, Board of Governors of the Federal Reserve System (U.S.).
  5. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
  6. Peter C.B. Phillips & Yangru Wu & Jun Yu, 2009. "Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values?," Cowles Foundation Discussion Papers 1699, Cowles Foundation for Research in Economics, Yale University.
  7. Bent Nielsen, 2005. "Analysis of co-explosive processes," Economics Papers 2005-W08, Economics Group, Nuffield College, University of Oxford.
  8. John Y. Campbell & Robert J. Shiller, 1988. "Interpreting Cointegrated Models," NBER Working Papers 2568, National Bureau of Economic Research, Inc.
  9. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
  10. Reinhart, Carmen M. & Rogoff, Kenneth S., 2008. "Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison," Scholarly Articles 11129156, Harvard University Department of Economics.
  11. Peter C.B.Phillips & Jun Yu, 2009. "Dating the Timeline of Financial Bubbles During the Subprime Crisis," Working Papers CoFie-07-2009, Sim Kee Boon Institute for Financial Economics.
  12. Christophe André, 2010. "A Bird's Eye View of OECD Housing Markets," OECD Economics Department Working Papers 746, OECD Publishing.
  13. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  14. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  15. Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1999. "Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 143-54, March-Apr.
  16. Gilles, Christian & LeRoy, Stephen F, 1992. "Bubbles and Charges," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 323-39, May.
  17. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
  18. Morris A. Davis & Andreas Lehnert & Robert F. Martin, 2005. "The Rent-Price Ratio for the Aggregate Stock of Owner-Occupied Housing," Urban/Regional 0509019, EconWPA.
  19. Flood, Robert P & Hodrick, Robert J, 1990. "On Testing for Speculative Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 85-101, Spring.
  20. Engsted, Tom, 2006. "Explosive bubbles in the cointegrated VAR model," Finance Research Letters, Elsevier, vol. 3(2), pages 154-162, June.
  21. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  22. Makoto Nakajima, 2011. "Understanding house-price dynamics," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 20-28.
  23. Stiglitz, Joseph E, 1990. "Symposium on Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 13-18, Spring.
  24. repec:fth:calaec:13-89 is not listed on IDEAS
  25. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
  26. Robert Shiller, 2007. "Understanding Recent Trends in House Prices and Home Ownership," Yale School of Management Working Papers amz2557, Yale School of Management, revised 01 Nov 2007.
  27. Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:38:y:2013:i:pb:p:369-381. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.