From Housing Speculation to Bubbles: The Role of Intercity Spillovers

The general consensus is that financial crises are caused by the housing speculative bubbles burst, yet little is known about the process of the speculation via intercity interactions. According to the non-fundamental component (NFC) as an indicator of speculative behaviors among Australian capital cities, this study employs a series of time-varying spillover methods to prove that speculation-driven interactions are very popular; moreover, intercity spillovers are particularly prevalent in the presence of speculative bubbles. The findings clearly establish that intercity spillovers are inextricably intertwined with housing speculation and subsequent bubbles. How to monitor and block intercity spillovers deserves explicit emphasis.