Testing for rational bubbles in Australian housing market from a long-term perspective

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 o¤ers more powerful econometric results. In order 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, Wu, and Yu (2011), and Phillips, Shi, and Yu (2015a,b). According to the results, there is clear speculative bubble behavior in real house prices between 1997-2020, speculative process that has not yet been adjusted.