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Signal Extraction with Kalman Filter: A Study of the Hong Kong Property Price Bubbles

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Author Info

  • Qin Xiao

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

  • Randolph Gee Kwang Tan

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

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Abstract

Since Flood and Garber (1980), the debate surrounding speculative bubbles has never subsided. A key obstacle to resolve this issue is the identification problem. A bubble is usually inferred from some assumed fundamental determinants of a price. These assumptions could be over-simplified. Furthermore, there might be data measurement errors. In this paper, we attempt to capture such errors with a latent state variable. This variable is extracted with Kalman filter. Based on our empirical comparisons, we find that it is possible to attribute the observed large price swings in the property market of Hong Kong during the 1980s and 1990s to a periodically collapsing rational speculative bubble.

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File URL: http://www.ntu.edu.sg/hss2/egc/wp/2006/2006-01.pdf
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Bibliographic Info

Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 0601.

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Length: 51 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:nan:wpaper:0601

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Postal: Nanyang Avenue, Singapore 639798.
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Web page: http://egc.hss.ntu.edu.sg/
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Related research

Keywords: rational speculative bubble; misspecification or measurement error; Kalman filter;

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References

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Cited by:
  1. Sherry Zhefang ZHOU & Helen Xiaohui BAO, 2009. "Modelling Price Dynamics In The Hong Kong Property Market," Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 4(1S), pages 8-26, April.

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