Working Paper: CEPR ID: DP5619
Authors: Gavin Cameron; John Muellbauer; Anthony Murphy
Abstract: This paper investigates the bubbles hypothesis with a dynamic panel data model of British regional house prices between 1972 and 2003. The model consists of a system of inverted housing demand equations, incorporating spatial interactions and lags and relevant spatial parameter heterogeneity. The results are data consistent, with plausible long-run solutions and include a full range of explanatory variables. Novel features of the model include transaction cost effects influencing the speed of adjustment, and interaction effects between an index of credit availability and real and nominal interest rates. No evidence for a recent bubble is found.
Keywords: bubble; house prices; ripple effect
JEL Codes: C51; E39
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| house prices (R31) | real per capita incomes (E25) |
| house prices (R31) | per capita housing stock (R21) |
| credit conditions index (CCI) + nominal mortgage rates (G21) | house prices (R31) |
| credit conditions index (CCI) + real mortgage rates (G21) | house prices (R31) |
| working-age population aged 20-39 (J11) | house prices (R31) |
| fundamentals (Y20) | house prices (R31) |
| negative shifts in fundamentals (E32) | nominal prices (P22) |