An Alternative Method for Identifying Booms and Busts in the Euro Area Housing Market

40 Pages Posted: 22 Nov 2012

See all articles by Dieter Gerdesmeier

Dieter Gerdesmeier

European Central Bank (ECB)

Andreja Lenarcic

European Stability Mechanism; European Stability Mechanism

Barbara Roffia

European Central Bank (ECB)

Date Written: November 15, 2012

Abstract

The main aim of this paper is to apply a method based on fundamentals ─ which has already been applied in the stock market analysis ─ to detect boom/bust in the housing market, with a focus on the euro area. In this context, an underlying model is developed and tested. It turns out that the user cost rate, a demographic variable, the unemployment rate, disposable income (or disposable income per capita), the debt-to-income ratio and, finally, the housing stock are fundamental variables which significantly explain house price developments. Booms and busts are then selected as episodes when the house price index deviates excessively from the levels which would be implied by these economic fundamentals. In addition, a cross-check of the boom/bust episodes based on this method and other statistical and fundamental ones is carried out in order to substantiate the results obtained. Finally, money and credit aggregates are included in the specifications and are found to be useful in explaining boom/busts cycles in house prices.

Keywords: house prices, booms, busts, quantile regressions, monetary and credit aggregates

JEL Classification: E37, E44, E51

Suggested Citation

Gerdesmeier, Dieter and Lenarcic, Andreja and Roffia, Barbara, An Alternative Method for Identifying Booms and Busts in the Euro Area Housing Market (November 15, 2012). ECB Working Paper No. 1493. Available at SSRN: https://ssrn.com/abstract=2176139

Dieter Gerdesmeier (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andreja Lenarcic

European Stability Mechanism ( email )

6a, 6a, Circuit de la Foire Internationale
Luxembourg, Luxembourg 1347
Luxembourg

European Stability Mechanism ( email )

6a, 6a, Circuit de la Foire Internationale
Luxembourg, Luxembourg 1347
Luxembourg

Barbara Roffia

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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