| Abstract [eng] |
This thesis proposes a robust analytical approach for making inferences about house price misalignments in the Baltic States. The analytical framework was developed by combining estimates from error-correction and theoretical user cost models with estimates from Hodrick-Prescott filtering exercise and price-to-rent and price-to-income ratios. It is shown in this thesis that the proposed framework is able to identify whether housing prices in the Baltics are below, inline or above the levels justified by the fundamentals. Using the framework, one would be able to tell a plausible and consistent story of the residential real estate developments in all three of the Baltic countries. Robustness checks show that the framework would have signalled overheating in the housing markets of the Baltic States as early as in 2005. The estimates show that at the end of the sample housing prices in the Baltic states were still below the fundamentals, therefore, no immediate policy action was needed. However, since the fundamentals are affected by the low interest rate environment, they might readjust once the monetary policy starts to normalise, therefore, the housing markets in the Baltic states deserves close monitoring. |
