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Real estate bubbles and contagion: new empirical evidence from Canada

Author

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  • Imad Rherrad
  • Jean-Louis Bago
  • Mardochée Mokengoy

Abstract

This paper investigates the presence of bubbles in the new housing market and resale housing market of four Canadian census metropolitan areas (CMAs): Vancouver, Toronto, Victoria and Hamilton, and whether the bubbles are contagious. The GSADF test developed by Phillips, Shi, and Yu (2015) is applied on a monthly price-to-rent ratio from January 1988 to December 2018 to date-stamp episodes of bubbles in these markets. Our results suggest that among the four CMAs, only the resale housing market of Victoria was exuberant, while for the new housing market, both Victoria and Vancouver experienced exuberance. Subsequently, using a non-parametric model with time-varying coefficients performed by Greenaway-McGrevy and Phillips (2016), we find the evidence of bubbles migration from the new housing and resale housing markets within and between these CMAs.

Suggested Citation

  • Imad Rherrad & Jean-Louis Bago & Mardochée Mokengoy, 2021. "Real estate bubbles and contagion: new empirical evidence from Canada," New Zealand Economic Papers, Taylor & Francis Journals, vol. 55(1), pages 38-51, January.
    • Handle: RePEc:taf:nzecpp:v:55:y:2021:i:1:p:38-51
    DOI: 10.1080/00779954.2020.1791940
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    Cited by:

    1. Jean-Louis Bago & Koffi Akakpo & Imad Rherrad & Ernest Ouédraogo, 2021. "Volatility Spillover and International Contagion of Housing Bubbles," JRFM, MDPI, vol. 14(7), pages 1-14, June.
    2. Vicente Esteve & María A. Prats, 2021. "Testing for rational bubbles in Australian housing market from a long-term perspective," Working Papers 2113, Department of Applied Economics II, Universidad de Valencia.
    3. Vijay Kumar Vishwakarma, 2021. "Long-run drivers and integration in interprovincial Canadian housing price relations," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 16(1), pages 22-40, November.
    4. Esteve Vicente & Prats Maria A., 2021. "Structural Breaks and Explosive Behavior in the Long-Run: The Case of Australian Real House Prices, 1870–2020," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 72-84, January.
    5. Jean-Louis Bago & Imad Rherrad & Koffi Akakpo & Ernest Ouédraogo, 2022. "An Empirical Investigation on Bubbles Contagion in Scandinavian Real Estate Markets," Businesses, MDPI, vol. 2(1), pages 1-8, March.

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