Assessing the existence of a bubble in the housing market using an Error Correction Model
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This paper is investigating the validity of using an Error Correction Model to assess the existence of a bubble. ...
This paper is investigating the validity of using an Error Correction Model to assess the existence of a bubble.
The assessment is realized through the studies of the bubble that grew in the housing sector at the beginning of the 2000's. I present two example of the use of this methodology, one paper from Peach and McCarthy which was stating that tere was no bubble at the end of 2004, and on paper from Soerensen stating that there was a bubble using a similar approach and data until the end of 2004 too. The paper try to identify some important difference which could explain the failure of Peach and McCarthy's paper.
To go further in this investigation of the quality of the methodology, this paper presents my own model realized post event, and try to identify more issues in the methodology.
Finally, some recommendations about how the methodology should use are formulated.
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