House Price Bubbles: fact or fiction?

Gerrard Winstanley office at
Thu Jul 20 15:31:45 BST 2006

Was There A British House Price Bubble?
Evidence from a Regional Panel*

Revised: 5 March 2006

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: House Prices; Bubble; Ripple Effect.
JEL Codes: C51, E39.

* This paper draws on research carried out for a project 
("Affordability Targets: Implications for Housing Supply") funded by 
the Office of the Deputy Prime Minister ( Support 
from the ESRC under grant RES-000-23-0244 `Improving Methods for 
Macro-econometric Modelling' is acknowledged. We would like to thank 
David Hendry, Geoff Meen and other participants at seminars in Oxford 
and Reading for very helpful comments. All errors and omissions remain 
our own...................

Gavin Cameron(1), John Muellbauer(2) and Anthony Murphy(2)
(1)Department of Economics, University of Oxford, Manor Road Building, 
(2)Nuffield College, Oxford OX1 1NF, UK

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