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The “housing bubble” and financial factors: Insights from a structural model of the French and Spanish residential markets


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  • Antipa, P.
  • Lecat, R.


Over the last decade, France and Spain have experienced property price and residential investment increases which were among the strongest and the lengthiest in the euro area. Although the quality of the underlying data limits the precision of the estimates, the present paper aims at analysing the fundamental factors behind these evolutions. The analysis presented here assesses whether the observed price dynamics may be attributed to a pure expectation bubble phenomenon or to the large changes in financial and demographic factors. This is done by means of a structural model of the demand and supply sides of the housing market with an error-correction process. When taking into account a standard set of macroeconomic variables, our estimates imply that residential property prices in France and Spain were approximately 20% above the level explained by their fundamentals. When demographic and financial factors such as the borrowing capacity are taken on board, the degree of overvaluation is drastically reduced. The adjustment path to equilibrium is slightly faster in France than in Spain, but both countries display significant downward rigidity in prices.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 267.

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Length: 47 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bfr:banfra:267

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Related research

Keywords: House prices ; Housing demand; Borrowing capacity ; Residential Investment ; Error correction model ; Instrumental variables.;

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Cited by:
  1. Gerdesmeier, Dieter & Lenarčič, Andreja & Roffia, Barbara, 2012. "An alternative method for identifying booms and busts in the euro area housing market," Working Paper Series 1493, European Central Bank.
  2. Andrea Nobili & Francesco Zollino, 2012. "A structural model for the housing and credit markets in Italy," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 887, Bank of Italy, Economic Research and International Relations Area.
  3. Jane Dokko & Brian M. Doyle & Michael T. Kiley & Jinill Kim & Shane Sherlund & Jae Sim & Skander Van Den Heuvel, 2011. "Monetary policy and the global housing bubble," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 26(66), pages 233-283, 04.


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