Determinants of housing bubbles' duration in OECD countries

We study the determinants of housing price bubbles' duration for a set of OECD countries between 1970 and 2015. Our topic of study is of major importance, as duration is a proxy for other dimensions, such as the magnitude of bubbles, the extent of macroeconomic imbalances, and the chance that a rational bubble turns into an irrational one. We answer two related questions: (i) Does prolonged domestic monetary-policy easing increase the duration of housing price bubbles? (ii) Does prolonged monetary-policy easing in the United States influence the housing bubbles' duration in other OECD countries? We show that the answer to the first question is a clear yes but that the answer to the second question is not as clear. Our main result is that monetary-policy tightening can accelerate the termination of a housing bubble. In this sense, our findings provide support for ‘leaning against the wind’ policies.