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Is There a Real Estate Bubble in the Czech Republic?

Is There a Real Estate Bubble in the Czech Republic?. Petr Zem čík MILANO, ERES 2010. Real Estate Price Indexes in Central and Eastern Europe. Real Estate Bubbles. Discrepanc y between property prices and model implied prices reflecting fundamental factors. Widely used models:

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Is There a Real Estate Bubble in the Czech Republic?

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  1. Is There a Real Estate Bubble in the Czech Republic? Petr Zemčík MILANO, ERES 2010

  2. Real Estate Price Indexes in Central and Eastern Europe

  3. Real Estate Bubbles • Discrepancy between property prices and model implied prices reflecting fundamental factors. • Widely used models: - Supply-demand model. Gallin (2006), Mikhed and Zemčík (2009, JHE) • Present-value model. Rent is the only factor. Campbell and Shiller (1987), Wang (2000), Mikhed and Zemčík (2009, JREFE)

  4. Panel data tests • Unit roots - Im, Pesaran, and Shin (2003), Pesaran (2007) • Regional correlation – Pesaran (2004) • Applications, US data – Malpezzi (1999), Gallin (2006), Mikhed and Zemčík (2009 JHE, JREFE) • Granger causality tests – Hurlin (2004), Hurlin and Venet (2004), Arellano and Bond (1991)

  5. Present-value model

  6. Econometric Methodology

  7. Apartment prices, 335 regions, Czech Republic

  8. Rents, 335 regions, Czech Republic

  9. Price-to-rent ratios, 335 regions, Czech Republic

  10. Apartment prices, 46 Prague districts

  11. Rents, 46 Prague districts

  12. Price-to-rent ratios, 46 Prague districts

  13. Panel data unit root tests

  14. Results • Apartment prices both in the Czech Republic overall and in its capital are only slightly overvalued. • Changes in prices are helpful in predicting changes in rents and vice versa. • Application in countries with large rental markets: e.g. majority of original EU members plus CR and Poland

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