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2000-2003 Real Estate Bubble in the UK but not in the USA

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Author Info

  • W. -X. Zhou

    (UCLA)

  • D. Sornette

    (UCLA and CNRS-Univ. Nice)

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    Abstract

    In the aftermath of the burst of the ``new economy'' bubble in 2000, the Federal Reserve aggressively reduced short-term rates yields in less than two years from 6.5% to 1.25% in an attempt to coax forth a stronger recovery of the US economy. But, there is growing apprehension that this is creating a new bubble in real estate, as strong housing demand is fuelled by historically low mortgage rates. Are we going from Charybdis to Scylla? This question is all the more excruciating at a time when many other indicators suggest a significant deflationary risk. Using economic data, Federal Reserve Chairman A. Greenspan and Governor D.L. Kohn dismissed recently this possibility. Using the theory of critical phenomena resulting from positive feedbacks in markets, we confirm this view point for the US but find that mayhem may be in store for the UK: we unearth the unmistakable signatures (log-periodicity and power law super-exponential acceleration) of a strong unsustainable bubble there, which could burst before the end of the year 2003.

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    File URL: http://arxiv.org/pdf/physics/0303028
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number physics/0303028.

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    Date of creation: Mar 2003
    Date of revision: Jul 2003
    Publication status: Published in Physica A 329 (2003) 249-263
    Handle: RePEc:arx:papers:physics/0303028

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    Web page: http://arxiv.org/

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    Cited by:
    1. Hao Meng & Wei-Xing Zhou & Didier Sornette, 2014. "Symmetric thermal optimal path and time-dependent lead-lag relationship: Novel statistical tests and application to UK and US real-estate and monetary policies," Papers 1408.5618, arXiv.org.
    2. Wei-Xing Zhou & Didier Sornette, 2007. "Analysis of the real estate market in Las Vegas: Bubble, seasonal patterns, and prediction of the CSW indexes," Papers 0704.0589, arXiv.org.
    3. D. Sornette & R. Woodard, . "Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis," Working Papers, ETH Zurich, Chair of Systems Design CCSS-09-003, ETH Zurich, Chair of Systems Design.
    4. Cameron, Gavin & Muellbauer, John & Murphy, Anthony, 2006. "Was There A British House Price Bubble? Evidence From A Regional Panel," ERES, European Real Estate Society (ERES) eres2006_150, European Real Estate Society (ERES).
    5. Petr Geraskin & Dean Fantazzini, 2013. "Everything you always wanted to know about log-periodic power laws for bubble modeling but were afraid to ask," The European Journal of Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(5), pages 366-391, May.
    6. Fry, J. M., 2009. "Bubbles and contagion in English house prices," MPRA Paper 17687, University Library of Munich, Germany.
    7. Didier Sornette & Ryan Woodard, 2009. "Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis," Papers 0905.0220, arXiv.org.
    8. D. Sornette & W. -X. Zhou, 2003. "Evidence of Fueling of the 2000 New Economy Bubble by Foreign Capital Inflow: Implications for the Future of the US Economy and its Stock Market," Papers cond-mat/0306496, arXiv.org.
    9. Fry, J. M., 2010. "Gaussian and non-Gaussian models for financial bubbles via econophysics," MPRA Paper 27307, University Library of Munich, Germany.
    10. Wosnitza, Jan Henrik & Leker, Jens, 2014. "Can log-periodic power law structures arise from random fluctuations?," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 401(C), pages 228-250.
    11. Zhi-Qiang Jiang & Wei-Xing Zhou & D. Sornette & Ryan Woodard & Ken Bastiaensen & Peter Cauwels, . "Bubble Diagnosis and Prediction of the 2005-2007 and 2008-2009 Chinese stock market bubbles," Working Papers, ETH Zurich, Chair of Systems Design CCSS-09-008, ETH Zurich, Chair of Systems Design.

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