Monitoring Housing Markets for Episodes of Exuberance: An Application of the Phillips Et Al. (2012, 2013) GSADF Test on the Dallas Fed International House Price Database

Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 165

28 Pages Posted: 14 Jan 2014

See all articles by Efthymios Pavlidis

Efthymios Pavlidis

Lancaster University - Department of Economics

Alisa Yusupova

Lancaster University - Lancaster University Management School

Ivan Paya

Lancaster University - Lancaster University Management School

David A. Peel

Lancaster University - Lancaster University Management School

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Adrienne Mack

Federal Reserve Banks - Federal Reserve Bank of Dallas

Valerie Grossman

Federal Reserve Banks - Federal Reserve Bank of Dallas

Date Written: December 30, 2013

Abstract

The detection of explosive behavior in house prices and the implementation of early warning diagnosis tests are of great importance for policy-making. This paper applies the GSADF test developed by Phillips et al. (2012) and Phillips et al. (2013), a novel procedure for testing, detection and date-stamping of explosive behavior, to the data from the Dallas Fed International House Price Database documented in Mack and Martínez-García (2011). We discuss the use of the GSADF test to monitor international housing markets. We assess the international boom and bust cycle experienced during the past 15 years through this lens — with special attention to the United States, the United Kingdom, and Spain. Our empirical results suggest that these three countries experienced a period of exuberance in housing prices during the late 90s and the first half of the 2000s that cannot be attributed solely to the behavior of fundamentals. Looking at all 22 countries covered in the International House Price Database, we detect a pattern of synchronized explosive behavior during the last international house boom-bust episode not seen before.

Keywords: House Prices; Unit-root Tests; Exuberance.

JEL Classification: C22, G12, R31

Suggested Citation

Pavlidis, Efthymios G and Yusupova, Alisa and Paya, Ivan and Peel, David Alan and Martinez-Garcia, Enrique and Mack, Adrienne and Grossman, Valerie, Monitoring Housing Markets for Episodes of Exuberance: An Application of the Phillips Et Al. (2012, 2013) GSADF Test on the Dallas Fed International House Price Database (December 30, 2013). Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 165, Available at SSRN: https://ssrn.com/abstract=2378505 or http://dx.doi.org/10.2139/ssrn.2378505

Efthymios G Pavlidis (Contact Author)

Lancaster University - Department of Economics ( email )

Lancaster LA1 4YX, LA1 4YX
United Kingdom

Alisa Yusupova

Lancaster University - Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Ivan Paya

Lancaster University - Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

David Alan Peel

Lancaster University - Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom
+44 (0)1524 593590 (Phone)
+44 (0)1524 594244 (Fax)

HOME PAGE: http://www.lancs.ac.uk/staff/peeld/

Enrique Martinez-Garcia

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)

HOME PAGE: http://sites.google.com/view/emgeconomics

Adrienne Mack

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Valerie Grossman

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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