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Diagnosing housing fever with an econometric thermometer

Crawford School of Public Policy | Arndt-Corden Department of Economics
Photo by Mark Bonica on Flickr

Event details

ACDE Seminar

Date & time

Tuesday 15 September 2020
2.00pm–4.00pm

Venue

Online via Zoom

Speaker

Shuping Shi, Macquarie University

Econometricians can help minimize the harm created by a housing bubble by providing a “thermometer” for diagnosing “housing fever”. This paper reviews the literature on econometric methods for identifying housing bubbles, discussing some new methods of research and providing an empirical application. A major challenge is to assess prices in relation to fundamentals. One solution is to estimate the fundamental component from an underlying structural relationship. A second aim of the paper is to improve the estimation accuracy of fundamentals by means of an easy-to-implement reduced-form approach. We use the IVX method to estimate the reduced-form model to reduce the finite sample bias arising from highly persistent regressors and endogeneity. A recursive evolving test is applied to the estimated non-fundamental component for bubble identification. An empirical application to Australian housing markets highlights the importance of accurate estimation of these housing market fundamentals.

Please email the seminar organiser for the Zoom link or to subscribe to the ACDE Seminar list.

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