Episodes Of Exuberance Research Articles

Dating common commodity price and inflation shocks with alternative approaches

This paper investigates the occurrence of common price shocks (co-exceedance) across different commodities. IMF monthly price series of 11 commodities are considered over the 1980-2021 period. The analysis considers two alternative stochastic processes. The first looks for common volatility clusters using individual GARCH models to detect whether and when respective clusters overlap. Through an appropriate battery of tests, the second alternative looks for a common Bubble Generating Process (BGP) by searching for individual explosive roots and then dating them to identify the possible overlaps and first movers. Evidence emerging about these shock generating processes is linked to the analogous behaviour of the US Consumer Price Index (CPI) to assess to what extent inflation shocks can be associated to the observed commodity price spikes. Results show that the detection of temporary bubbles and volatility clusters only partially agrees on the episodes of exuberance, on the first-moving commodities and on the involvement of the CPI. This provides helpful suggestions on the development of a real-time surveillance tool supporting policy intervention in periods of commodity price turbulence.

Explosivity and Time-Varying Granger Causality: Evidence from the Bubble Contagion Effect of COVID-19-Induced Uncertainty on Manufacturing Job Postings in the United States

This study evaluates the explosive behavior and Granger causality episodes in manufacturing job postings in the United States (JOBPUS) and COVID-19-induced uncertainty (COVIDEMV). This study applied the novel unit root tests with explosive behavior, and the novel time-varying Granger causality test for a sample period ranging from 1 January 2020 to 29 July 2022. Further, this study used date stamping to identify the subperiods of the explosive behavior and causality. The findings revealed that JOBPUS exhibits explosive behavior, with several episodes of exuberance (bubbles) across the sample period while COVIDEMV does not exhibit explosivity during the period. However, the results of the causality provide evidence of bidirectional causality, with several episodes between the variables. Moreover, the episodes of the explosivity and causality coincide with significant episodes in the history of the COVID-19 pandemic worldwide and in the United States particularly, such as the date when United States recorded a COVID-19-related death toll of over 100,000 people for the first time, after the presidential election, after Halloween celebrations, after the discovery and administration of COVID-19 vaccines as well as the discovery of the Delta and the Omicron variants of COVID-19. Therefore, the time-series characteristics of JOBPUS and its causal nexus with COVIDEMV largely depend on the intensity of the instability caused by the pandemics. Hence, explosivity and time-varying causal behavior should necessarily be accounted for when modelling the job market conditions in the United States, particularly during pandemic-related crises.

Emerging stock market exuberance and international short-term flows

We investigate bubble-like dynamics in 22 Emerging Market Economies (EMEs). We identify the existence of synchronized stock markets' exuberance across EMEs before the 2000s Global Financial Crisis (GFC). We also investigate whether international short-term capital flows help to predict such episodes of exuberance. We find that all three types of short-term flows are significant, but international equity flows prove the most robust predictor. International capital flows (especially equity flows) partially explain the synchronization of exuberance detected and thus demand close attention when monitoring bubble-like dynamics.

Explosive dynamics in house prices? An exploration of financial market spillovers in housing markets around the world

Asset prices in general, and real house prices in particular, are often characterized by a nonlinear data-generating process which may display at times mildly explosive behavior. In this paper, using the recursive (right-tailed) unit root test methodology proposed by Phillips et al. (2015a,b), we find widespread evidence of episodes of explosiveness (or exuberance) in international real house prices and establish a timeline of such episodes for a panel of 23 countries between first quarter 1975 and fourth quarter 2015. Motivated by theory, we adopt a dynamic panel logit/probit framework to empirically investigate whether macro fundamentals—and, more specifically, financial variables—help predict such episodes of exuberance in international real house prices. We find that interest rate spreads and real stock market growth together with standard housing fundamentals (growth in real personal disposable income per capita and inflation) are, indeed, among the best predictors. Furthermore, we argue that financial developments in other asset markets can play a significant role as a trigger in the emergence of explosiveness in housing markets.

Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun

In this paper, we examine changes in the time series properties of three widely used housing market indicators (real house prices, price-to-income ratios, and price-to-rent ratios) for a large set of countries to detect episodes of explosive dynamics. Dating such episodes of exuberance in housing markets provides a timeline as well as empirical content to the narrative connecting housing exuberance to the global 2008 −09 recession. For our empirical analysis, we employ two recursive univariate unit root tests recently developed by Phillips and Yu (International Economic Review 52(1):201–226, 2011) and Phillips et al. (2015). We also propose a novel extension of the test developed by Phillips et al. (2015) to a panel setting in order to exploit the large cross-sectional dimension of our international dataset. Statistically significant periods of exuberance are found in most countries. Moreover, we find strong evidence of the emergence of an unprecedented period of exuberance in the early 2000s that eventually collapsed around 2006 −07, preceding the 2008 −09 global recession. We examine whether macro and financial variables help to predict (in-sample) episodes of exuberance in housing markets. Long-term interest rates, credit growth and global economic conditions are found to be among the best predictors. We conclude that global factors (partly) explain the synchronization of exuberance episodes that we detect in the data in the 2000s.

A self-study of mood disorder: Fifteen episodes of exuberance, none of depression.

A self-study of mood disorder: Fifteen episodes of exuberance, none of depression.

Supplemental Material for A Self-Study of Mood Disorder: Fifteen Episodes of Exuberance, None of Depression

Supplemental Material for A Self-Study of Mood Disorder: Fifteen Episodes of Exuberance, None of Depression

Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun

Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun

The stock market and the Fed1

This article investigates the reaction of the Federal Reserve to developments in the stock market. The issue is analysed by first constructing an Index of Stock Price Misalignment (ISPM) in which the fundamental value of the stocks is computed on the basis of the discounted cash flow approach and by then including this index, among the regressors, into a forward looking Taylor rule. In accordance with the descriptive evidence, based mainly on the analysis of the Federal Open Market Committee (FOMC) meetings and public statements, our findings show that the Fed tends to lower the Fed funds rate when stock prices fall below their fundamental value, while there is no evidence of monetary stringency during episodes of exuberance in the stock market. 1 Paper presented at the XI Tor Vergata Financial Conference, Rome, 2001, and at the XIII Conference of the IEA (International Economic Association), Lisbon, 2003.

The Stock Market and the Fed

The paper investigates the reaction of the Federal Reserve to developments in the stock market. The issue is analyzed by first constructing an Index of Stock Price Misalignement in which the fundamental value of the stocks is computed on the basis of the discounted cash flow approach and by then including this index, among the regressors, into a forward looking Taylor rule. In accordance with the descriptive evidence, based mainly on the analysis of the FOMC meetings and public statements, our findings show that the Fed tends to lower the Fed funds rate when stock prices fall below their fundamental value, while there is no evidence of monetary stringency during episodes of exuberance in the stock market.