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Exuberance, Bubbles or Froth? Some Historical Results using Long Run House Price Data for Amsterdam, Norway and Paris

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It has been argued that house prices may exhibit a period of bubbles and that they may also be either a cause or an effect of, for example, the Global Financial Crisis (GFC). In this paper, we test econometrically whether house price bubbles have historical precedents and also whether contagion from other financial crises are mirrored in these housing markets. We apply the generalized sup ADF (GSADF) test based procedure of Phillips, Shi, and Yu (2015a) to test for the evidence of exuberance or bubbles in historical housing price indices for the Herengracht index of Amsterdam (1649-2010), Norway (1819-2014) and Paris (1650-2012) based upon the right-tailed unit root null hypothesis with or without an intercept. We find, firstly, there is little evidence of exuberance in the real Herengracht index or of bubbles in the house price-rent ratio for Amsterdam. Secondly, our empirical results provide evidence of exuberance in Norwegian house prices where our identified episodes coincide with the major financial crisis in Norwegian history. Thirdly, no significant evidence of exuberance is found in the historical house price series of Paris under most model specifications.

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  • Yang Hu & Les Oxley, 2016. "Exuberance, Bubbles or Froth? Some Historical Results using Long Run House Price Data for Amsterdam, Norway and Paris," Working Papers in Economics 16/08, University of Waikato.
    • Handle: RePEc:wai:econwp:16/08
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    1. Brent W. Ambrose & Piet Eichholtz & Thies Lindenthal, 2013. "House Prices and Fundamentals: 355 Years of Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 477-491, March.
    2. Markus K. Brunnermeier & Isabel Schnabel, 2014. "Bubbles and Central Banks: Historical Perspectives," Working Papers 1411, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 31 Oct 2014.
    3. Zhao, Yanping & Chang, Hsu-Ling & Su, Chi-Wei & Nian, Rui, 2015. "Gold bubbles: When are they most likely to occur?," Japan and the World Economy, Elsevier, vol. 34, pages 17-23.
    4. Robert J. Shiller, 2007. "Understanding recent trends in house prices and homeownership," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 89-123.
    5. repec:mcb:jmoncb:v:45:y:2013:i::p:477-491 is not listed on IDEAS
    6. Shiller Robert J., 2006. "Long-Term Perspectives on the Current Boom in Home Prices," The Economists' Voice, De Gruyter, vol. 3(4), pages 1-11, March.
    7. Stiglitz, Joseph E, 1990. "Symposium on Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 13-18, Spring.
    8. Allen, Robert C. & Bengtsson, Tommy & Dribe, Martin (ed.), 2005. "Living Standards in the Past: New Perspectives on Well-Being in Asia and Europe," OUP Catalogue, Oxford University Press, number 9780199280681.
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    1. Yang Hu & Les Oxley, 2017. "Exuberance in Historical Stock Prices during the Mississippi and South Seas Bubble Episodes," Working Papers in Economics 17/08, University of Waikato.
    2. Peter C. B. Phillips & Shuping Shi, 2019. "Detecting Financial Collapse and Ballooning Sovereign Risk," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(6), pages 1336-1361, December.
    3. Yang Hu & Les Oxley, 2017. "Exuberance in British Share Prices during the Railway Mania of the 1840s: Evidence from the Phillips, Shi and Yu Test," Working Papers in Economics 17/09, University of Waikato.
    4. Huerta-Sanchez, Daniel & Jafarinejad, Mohammad & Kim, Dongshin & Soyeh, Kenneth W., 2020. "Disentangling bubbles in equity REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 357-367.
    5. Hu, Yang & Oxley, Les, 2018. "Do 18th century ‘bubbles’ survive the scrutiny of 21st century time series econometrics?," Economics Letters, Elsevier, vol. 162(C), pages 131-134.

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • N90 - Economic History - - Regional and Urban History - - - General, International, or Comparative
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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