Pavlidis, Efthymios and Paya, I and Peel, D and Spiru, A M (2009) Bubbles in House Prices and their Impact on Consumption: Evidence for the US. Working Paper. The Department of Economics, Lancaster University.
This paper provides evidence that some aggregate and regional U.S. real house price indices exhibited a bubble in the last few years according to the Phillips et al. (2007) unit root test. We subsequently investigate whether house price acceleration (deceleration) had a signi.cant impact on consumption in an error correction mechanism implied by a wide class of optimizing models. Our results support the argument that real house prices have their major effect on consumption only during the bubble period.
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