Empirical Economics

, Volume 51, Issue 2, pp 483–516 | Cite as

Testing for a housing bubble at the national and regional level: the case of Israel

  • Itamar CaspiEmail author


Between 2008 and 2013, home prices in Israel appreciated by roughly 50 % in real terms, with increases in nearly 60 % in some regions. This paper examines whether this phenomenon reflects the presence of a national or regional housing bubble by applying econometric tests for explosive behavior to quality-adjusted national- and regional-level data on the home price to rent ratio, while controlling for various fundamental factors, including interest rates, income and the leverage ratio. Overall, study results indicate that the national- and regional-level data are inconsistent with a housing bubble scenario. Most of the results are robust to a variety of tests and alternate specifications. The framework I provide to study the Israeli case may be applied to study other housing markets facing similar developments.


Explosiveness tests Housing bubble Dynamic Gordon growth model Regional data Israel 

JEL Classification

C22 G12 R21 



I thank Yossi Yakhin, Nathan Sussman, Akiva Offenbacher, Sigal Ribon, Offer Lieberman, Jonathan Benchimol, Dana Orfaig, Nadav Steinberg, Lior Gallo, two anonymous referees, as well as the participants at the Bank of Israel’s Research Department seminar and the DIW Macroeconometric Workshop for helpful comments and discussions.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.Research DepartmentBank of IsraelJerusalemIsrael

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