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Did the Recent Housing Boom Signal the Global Financial Crisis?

  • David M. Kemme

    ()

    (Department of Economics, University of Memphis, Memphis, TN 38152, USA)

  • Saktinil Roy

    ()

    (Centre for Finance, Economics and Operations Management, Athabasca University, 22 Sir Winston Churchill Avenue, Suite 301, Saint Albert, AB T8N 1B4, Canada)

Shiller's (2005) prediction of the current global crisis followed from two key observations: (i) the recent housing booms in the United States and other advanced countries were not explained by economic fundamentals; and (ii) historically similar financial booms eventually collapsed, leading to recession. This article provides an empirical framework linking Shiller's (2005) observations and crisis prediction. We utilize vector error correction models and panel probit and logit models to show that tracking a single variable, real house prices, was sufficient to predict the current global crisis.

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File URL: http://dx.doi.org/10.4284/0038-4038-78.3.999
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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2012)
Issue (Month): 3 (January)
Pages: 999-1018

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Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:999-1018
Contact details of provider: Web page: http://www.southerneconomic.org/

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