Abstract
Abstract In this article, we use tests of explosive behavior in real house prices with annual data for the case of Australia for the period 1870–2020. The main contribution of this paper is the use of very long time series. It is important to use longer span data because it offers more powerful econometric results. To detect episodes of potential explosive behavior in house prices over this long period, we use the recursive unit root tests for explosiveness proposed by Phillips et al. (2011), (2015a,b). According to the results, there is a clear speculative bubble behavior in real house prices between 1997 and 2020, speculative process that has not yet been adjusted.
Highlights
In this article, we use tests of explosive behavior in real house prices with annual data for the case of Australia for the period 1870–2020
For the analysis of structural instability in some deterministic component of the series, the procedures proposed by Perron and Yabu (2009a,b) and Perron et al (2020) allow estimation of a trend function and testing for structural changes regardless of whether the stochastic component is stationary or contains an autoregressive unit root, but it remains to study their properties under explosiveness, as in the bubble case
It could be of valuable interest and relevant for the interpretation of the empirical analysis, to discuss whether the test results for explosiveness could be due to some type of structural instability or if, they correctly identify some type of periodically collapsing explosive mechanism
Summary
We use tests of explosive behavior in real house prices with annual data for the case of Australia for the period 1870–2020. According to Bank of International Settlements statistics (BIS, 2021), real housing prices in Australia increased by 31.6% between 2012 and 2017 (on average +4.3% annually). This rapid growth in house prices generates a debate about the affordability of housing and increases unrest over the presence of speculative bubble behaviors and their impact on economic and financial stability. The changes in house prices can negatively influence the behavior of different macroeconomic variables. Household consumption can be influenced through the housing wealth channel. Investment by small businesses may be limited by restrictions on access to credit that affects many small firms.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
