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Speculative Bubbles in U.K. House Prices: Some New Evidence
Author(s) -
Garino Gaia,
Sarno Lucio
Publication year - 2004
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2004.tb00604.x
Subject(s) - stylized fact , economics , econometrics , rational expectations , sample (material) , house price , empirical evidence , function (biology) , keynesian economics , thermodynamics , physics , philosophy , epistemology , evolutionary biology , biology
In this article, we test the view, widely held among both academics and practitioners, that speculative bubbles have characterized the time series behavior of U.K. house prices in recent times. We motivate our empirical analysis using a stylized overlapping‐generations model which generates a housing demand function of the form assumed by a large literature, illustrating how rational bubbles may arise as a solution to the house price determination equation. Employing two recently developed econometric techniques specifically designed to test for rational bubbles, we then provide empirical evidence for the existence of bubbles in U.K. house prices over the sample period 1983‐2002.