Discussion Paper

No. 2012-44 | September 05, 2012
An Early Warning System to Predict the Speculative House Price Bubbles
(Published in Special Issue Coping with Systemic Risk)

Abstract

In this paper, the authors construct country-specific chronologies of house price bubbles for 12 OECD countries over the period 1969:Q1–2009:Q4. These chronologies are obtained using a combination of fundamental and filter approaches. The resulting speculative bubble chronology is the one providing the highest concordance between these two techniques. In addition, the authors suggest an early warning system based on three alternative approaches: signaling approach, logit, and probit models. It is shown that the latter two models allow much more accurate predictions of house price bubbles than the signaling approach. The prediction accuracy of the logit and probit models is high enough to make them useful in forecasting the future speculative bubbles in the housing market. Thus, this method can be used by policymakers in their attempts to timely detect house price bubbles and to attenuate their devastating effects on the domestic and world economy.

Paper submitted to the special issue Coping with Systemic Risk

JEL Classification

E37 E32 C33 C25

Cite As

Christian Dreger and Konstantin A. Kholodilin (2012). An Early Warning System to Predict the Speculative House Price Bubbles. Economics Discussion Papers, No 2012-44, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-44

Assessment



Comments and Questions


Anonymous - Comment
September 28, 2012 - 10:54

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Christian Dreger and Konstantin A. Kholodilin - Reply to comment
October 04, 2012 - 10:11

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Christian Dreger and Konstantin A. Kholodilin - revised version
October 04, 2012 - 10:13

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Anonymous - Comment 2
October 15, 2012 - 15:34

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Christian Dreger and Konstantin A. Kholodilin - Reply to Reader Comment 2
October 24, 2012 - 08:47

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Christian Dreger and Konstantin A. Kholodilin - Revised Version
October 24, 2012 - 08:48

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