Shiller's (2005) prediction of the current global crisis followed from two key observations: (i) the recent housing booms in the United States and other advanced countries were not explained by economic fundamentals; and (ii) historically similar financial booms eventually collapsed, leading to recession. This article provides an empirical framework linking Shiller's (2005) observations and crisis prediction. We utilize vector error correction models and panel probit and logit models to show that tracking a single variable, real house prices, was sufficient to predict the current global crisis.
|Number of pages||20|
|Journal||Southern Economic Journal|
|Publication status||Published - Jan. 2012|