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
Date Written: December 30, 2013
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: Suggested Citation