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House price cycles in emerging economies

Alessio Ciarlone (International Economic Analysis department, Bank of Italy, Rome, Italy)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 2 March 2015




This paper aims to investigate the characteristics of house price dynamics for a sample of 16 emerging economies from Asia and Central and Eastern Europe over the period of 1995-2011.


Linking housing valuations to a set of conventional fundamental determinants – relative to both the supply and the demand side of the market, institutional factors and other asset prices – and modelling short-term price dynamics – which reflect gradual adjustment to underlying fundamentals –conclusions about the existence and the basic nature of house price overvaluation (undervaluation) are drawn.


Overall, it was found that actual house prices in the sample of emerging economies are not overly disconnected from fundamentals. Rather, they tend to reflect a somewhat slow adjustment to shocks to the latter. Moreover, the evidence that housing valuations may be driven by overly optimistic (or pessimistic) expectations is, in general, weak.

Research limitations/implications

Residential property prices used in the empirical analysis have many limitations: while some series are derived using a hedonic pricing method, others are based on floor area prices collected by national authorities; while some countries publish house prices in national currency per-square metre (or per apartment or per dwelling), others calculate an index number scaled to some base year; while some countries publish statistics for the whole national territory, others produce data only for the capital city or for the largest cities in the country; data from national sources refer to different types of residential property; finally, available time series are relatively short, which may adversely affect the robustness of estimation results.

Practical implications

The decomposition suggested in the paper has important implications: it would be paramount, in fact, for policymakers to implement market-specific diagnoses, and to find the right policy instruments that can ideally distinguish between the two underlying components driving house price short-run dynamics.


There is a very small body of empirical literature on housing market developments in emerging economies, especially if focussed on the comparisons between the actual dynamics of housing valuations and the equilibrium ones.



This research was finalised when the author was visiting the Faculty of Economics of the University of Cambridge. The author is greatly indebted to Francesco Bripi, Luisa Corrado, Antonio De Socio, Valeria Rolli, Vanessa Smith, Giorgio Trebeschi, Teng Teng Xu and an anonymous referee for useful comments on earlier versions of this paper; any errors and omissions remain the author’s own responsibility. The usual disclaimers apply.

This work builds upon existing research, the working paper for which can be located here:


Ciarlone, A. (2015), "House price cycles in emerging economies", Studies in Economics and Finance, Vol. 32 No. 1, pp. 17-52.



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