I know what you did during the last bubble : determinants of housing bubbles' duration in OECD countries

Amador-Torres, Juan Sebastián; Gómez-González, José Eduardo; Sanín-Restrepo, Sebastián

I know what you did during the last bubble : determinants of housing bubbles' duration in OECD countries

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Borradores de Economía; No. 1005

Date published

2017-07-07

Date

2017-07-07

Authors

Amador-Torres, Juan Sebastián
Gómez-González, José Eduardo
Sanín-Restrepo, Sebastián

Document language

eng

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Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

We use hazard models to study the determinants of housing price bubbles’ duration. We answer two related questions: i). Does prolonged domestic monetary policy easing increase the duration of housing price bubbles? And, ii). Does prolonged monetary policy easing in the US influences housing bubbles’ duration in other OECD countries? Our results suggest that the answer to the first question is a clear yes, while the answer to the second question is an indirect yes. Other variables that are also good predictors of the duration of bubbles are GDP growth and the degree of financial market development. Bubbles in developed financial markets tend to last longer. Other institutional variables, such as loan-to-value caps and limits to banking leverage, population growth and the consumer confidence index, have no effect on the probability of ending a bubble. Our results have relevant policy implications.