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Housing Markets in Central and Eastern Europe: Is There a Bubble in the Czech Republic?


  • Petr Zemcik


Real estate prices more than doubled in many countries of Central and Eastern Europe from 2003 to 2008. In this paper, I provide the first assessment of whether housing prices in this region correspond to rents, i.e. to cash-flows related to an apartment purchase. State-of-theart panel data stationarity and Granger causality techniques are employed to test the implications of the standard present-value model using regional data from the Czech Republic. Apartment prices both in this country overall and in its capital are only slightly overvalued. In addition, changes in prices are helpful in predicting changes in rents and vice versa.

Suggested Citation

  • Petr Zemcik, 2009. "Housing Markets in Central and Eastern Europe: Is There a Bubble in the Czech Republic?," CERGE-EI Working Papers wp390, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp390

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    References listed on IDEAS

    1. Balázs Égert & Dubravko Mihaljek, 2007. "Determinants of House Prices in Central and Eastern Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 49(3), pages 367-388, September.
    2. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    3. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    4. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
    5. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    6. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
    7. Joshua Gallin, 2006. "The Long-Run Relationship between House Prices and Income: Evidence from Local Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 417-438, September.
    8. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    9. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
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    More about this item


    Central and Eastern Europe; Czech Republic; panel data; unit root; bubble; house prices; rents.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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