Dating the timeline of financial bubbles during the subprime crisis

A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a technology for identifying bubble behavior with consistent dati...

Full description

Saved in:
Bibliographic Details
Published in:Quantitative economics 2011-11, Vol.2 (3), p.455-491
Main Authors: Phillips, Peter C. B, Yu, Jun
Format: Article
Language:English
Subjects:
C15
Commodity markets
Commodity prices
crashes
Crises
Crude oil prices
date stamping
Econometrics
Economic growth
explosive behavior
Financial bubbles
G01
G12
Migration
mildly explosive process
Petroleum
Price indexes
Real estate
subprime crisis
Subprime loans
Technology
Time series
timeline
Citations: Items that cite this one
Online Access:Request full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a technology for identifying bubble behavior with consistent dating of their origination and collapse. The tests serve as an early warning diagnostic of bubble activity and a new procedure is introduced for testing bubble migration across markets. Three relevant financial series are investigated, including a financial asset price (a house price index), a commodity price (the crude oil price), and one bond price (the spread between Baa and Aaa). Statistically significant bubble characteristics are found in all of these series. The empirical estimates of the origination and collapse dates suggest a migration mechanism among the financial variables. A bubble emerged in the real estate market in February 2002. After the subprime crisis erupted in 2007, the phenomenon migrated selectively into the commodity market and the bond market, creating bubbles which subsequently burst at the end of 2008, just as the effects on the real economy and economic growth became manifest. Our empirical estimates of the origination and collapse dates and tests of migration across markets match well with the general dateline of the crisis put forward in the recent study by Caballero, Farhi, and Gourinchas (2008a).
ISSN:1759-7331
1759-7323
1759-7331
DOI:10.3982/QE82