The presence of a bubble in the US housing market prior to the 2007 subprime mortgage financial crisis is investigated. This is done by looking into the relationship between house prices and rental prices, known as the price–rent ratio, which is an important measure of a potential deviation...

The dramatic rise in Canada's average house price to average rent ratio has induced some commentators to argue that a speculative bubble is under way the collapse of which will have a calamitous effect on the economy. Others have argued, however, that the currently high level of house prices may...

Econometric evidence suggests the existence of two dynamics in the postwar U.S. housing market: (i) housing rental and purchase prices co-move positively in response to productivity shocks, and (ii) the purchase price exhibits much larger volatile movements than the rental price in response to...

This paper investigates the inflation rate that should be set as the target for the central bank. To this end, we develop a two-sector economy model in the existence of long-lived durables. In contrast to recent studies that have been conducted on how monetary policy can affect the role of...

This paper proposes a modified present-value model that takes into account the fact that movements in the price-rent ratio for housing may not be mean-reverting. Our approach decomposes the price-rent ratio into expected real rent growth, expected housing return and a non-present-value (NPV)...

This paper proposes a modified present-value model that takes into account the fact that movements in the price-rent ratio for housing may not be mean-reverting. Our approach decomposes the price-rent ratio into expected real rent growth, expected housing return and a non-present-value (NPV)...

Departures of the housing market from equilibrium can be detected by comparing the actual price-rent ratio with the user cost of owner occupying. Empirical implementation of this idea, however, is problematic for two reasons. First, the price-rent ratio needs to be quality adjusted. Second, the...

Departures of the housing market from equilibrium can be detected by comparing the actual price-rent ratio with the user cost of owner occupying. Empirical implementation of this idea, however, is problematic for two reasons. First, the price-rent ratio needs to be quality adjusted. Second, the...

This paper introduces a State Space approach to explain the dynamics of rent growth, expected returns and Price-Rent ratio in housing markets. According to the present value model, movements in price to rent ratio should be matched by movements in expected returns and expected rent growth. The...

We derive the parameter restrictions that a standard equity market model implies for a bivariate vector autoregression for stock prices and dividends, and we show how to test these restrictions using likelihood ratio tests.  The restrictions, which imply that stock returns are unpredictable,...