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I know what you did during the last bubble: Determinants of housing bubbles' duration in OECD countries

Author

Listed:
  • J. Sebastian Amador-Torres

    (Banco de la República de Colombia)

  • Jose Eduardo Gomez-Gonzalez

    (Banco de la República de Colombia)

  • Sebastian Sanin-Restrepo

    (Banco de la República de Colombia)

Abstract

We use hazard models to study the determinants of housing price bubbles’ duration. We answer two related questions: i). Does prolonged domestic monetary policy easing increase the duration of housing price bubbles? And, ii). Does prolonged monetary policy easing in the US influences housing bubbles’ duration in other OECD countries? Our results suggest that the answer to the first question is a clear yes, while the answer to the second question is an indirect yes. Other variables that are also good predictors of the duration of bubbles are GDP growth and the degree of financial market development. Bubbles in developed financial markets tend to last longer. Other institutional variables, such as loan-to-value caps and limits to banking leverage, population growth and the consumer confidence index, have no effect on the probability of ending a bubble. Our results have relevant policy implications.

Suggested Citation

  • J. Sebastian Amador-Torres & Jose Eduardo Gomez-Gonzalez & Sebastian Sanin-Restrepo, 2017. "I know what you did during the last bubble: Determinants of housing bubbles' duration in OECD countries," Borradores de Economia 1005, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1005
    DOI: 10.32468/be.1005
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    References listed on IDEAS

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    More about this item

    Keywords

    Housing bubbles; Bubble formation; Recursive right-tailed unit root tests; Duration; Hazard function; OECD.;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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