Bubbles and Spillovers in Korean Housing Markets

This study identifies bubbles in Korean housing markets based on the generalized supremum ADF (GSADF) method proposed by Phillip et al. (2015). This study also examines the spillover effect among Korean housing markets, using the method of Diebold, Yilmaz (2014). Our empirical findings reveal that bubbles are detected across all cities during 1998M12~2020M01. Especially, Seoul metropolitan area experienced a more chronic and sustained longer-lasting explosive bubbles in house prices compared to the other cities. The phase of boom period is still in progress at the moment in some Korean cities. In addition, Seoul has the strongest impact on the housing markets across all cities. Therefore, it is evident that Seoul plays a dominant role in transmitting the spillovers of house price movements in Korea. Our findings highlight the importance of the real-time monitoring aspects of the GSADF method in that policy makers can be better equip to construct an early warning system in dealing with bubbles and spillover effects in housing markets.