Abstract
We study the existence and international transmission of housing market bubbles, using quarterly information of twenty OECD countries for the period comprised between 1970 and 2015. We find that housing bubbles are present in all the countries included in our sample. Multiple bubbles are found in all but two of those countries. We find five episodes of transmission. All of them had origin in the US housing bubble preceding the subprime crisis. Most transmissions were to European countries. Notably, the Spanish housing bubble was not a direct consequence of the US housing bubble. Its origin must be found in other causes.
Notes
In behavioral bubble models at least some of the agents are not rational, and bubbles appear from difference of opinions between bounded-rational agents or from behavioral rules, such as feedback-trading, that some non-rational agents might follow. For example, in Scheinkman and Xiong (2003), bubbles emerge due to the combined effect of finitely supplied assets being traded by agents that are bounded rational and a market with short-selling restrictions.
The number of lags for each regression was selected following traditional information criteria, i.e., the Bayesian Information Criterion and the Akaike Information Criterion.
Our results, however, are robust to different reasonable fixed window sizes.
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Acknowledgements
The errors and omissions are the sole responsibility of the authors. The opinions expressed here are those of the authors and do not necessarily represent those of Banco de la República or its Board of Directors. We want to thank C.F. Sirmans, Caterina Di Tommaso, Nezih Guner, Wilmer Ferrer, Jair Ojeda, Mauricio Villamizar, conference participants at the 25th MBF International Rome Conference on Money, Banking and Finance, and anonymous referees for useful comments and discussions on earlier versions of this paper.
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Gomez-Gonzalez, J.E., Gamboa-Arbeláez, J., Hirs-Garzón, J. et al. When Bubble Meets Bubble: Contagion in OECD Countries. J Real Estate Finan Econ 56, 546–566 (2018). https://doi.org/10.1007/s11146-017-9605-4
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DOI: https://doi.org/10.1007/s11146-017-9605-4
Keywords
- Housing bubbles
- International transmission of bubbles
- Recursive right-tailed unit root tests
- OECD countries