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House prices: bubbles, exuberance or something else? Evidence from euro area countries
C12 - Hypothesis Testing
C22 - Time-Series Models
The real estate market plays a crucial role in a country's economy. Since residential property is the most important component of households' wealth, real estate markets price trends can affect households' consumption and investment decisions via wealth effects. As real estate is often used as collateral for loans, changes in real estate prices affect households' debt and their ability to repay loans, and consequently also impact on the banking sector. As housing covers a basic human need, analyzing fluctuations in residential property prices is also important from a social perspective. Furthermore, since the construction industry is a main employer, investment in construction has a major influence on economic activity. Thus, developments in the real estate market have far-reaching implications on the economy as a whole as well as on financial stability. In this paper we use different methodologies with the objective of providing evidence regarding potential bubble/exuberant behaviour of economic agents in several European countries and the US, over the last four decades.