DP5619 Was There a British House Price Bubble? Evidence from a Regional Panel

Author(s): Gavin Cameron, John Muellbauer, Anthony Murphy
Publication Date: April 2006
Keyword(s): bubble, house prices, ripple effect
JEL(s): C51, E39
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5619

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.