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Speculative Bubbles in U.K. House Prices: Some New Evidence

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  • Gaia Garino
  • Lucio Sarno

Abstract

In this article, we test the view, widely held among both academics and practitioners, that speculative bubbles have characterized the time series behavior of U.K. house prices in recent times. We motivate our empirical analysis using a stylized overlapping‐generations model which generates a housing demand function of the form assumed by a large literature, illustrating how rational bubbles may arise as a solution to the house price determination equation. Employing two recently developed econometric techniques specifically designed to test for rational bubbles, we then provide empirical evidence for the existence of bubbles in U.K. house prices over the sample period 1983‐2002.

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  • Gaia Garino & Lucio Sarno, 2004. "Speculative Bubbles in U.K. House Prices: Some New Evidence," Southern Economic Journal, John Wiley & Sons, vol. 70(4), pages 777-795, April.
    • Handle: RePEc:wly:soecon:v:70:y:2004:i:4:p:777-795
    DOI: 10.1002/j.2325-8012.2004.tb00604.x
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    2. Creina Day, 2018. "Population and house prices in the United Kingdom," Scottish Journal of Political Economy, Scottish Economic Society, vol. 65(2), pages 127-141, May.

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