Irish House Prices - Will the Roof Cave In?

In the last few years there have been many comments made in the media about the Irish housing market boom. This paper focuses on two of these comments. The first comment is that some economists have suggested that a speculative bubble might be present in Irish house prices. The second comment is that some housing market analysts have asked whether a crash similar to what happened in the British housing market in the late 1980s would occur in Ireland. Many of these analysts suggest that it is highly unlikely that a similar slump would occur in the Irish housing market. Given that bubbles have a habit of bursting one might think that these remarks are contradictory. We reconcile these two comments using regime-switching models of real secondhand house prices in Britain and Ireland. The models are estimated and tested to explore whether speculative bubbles, fads or just fundamentals drive house prices. Our main findings suggest that there was a speculative bubble in Britain in the late 1980s and in Ireland in the late 1990s. We estimate that the probability of a crash in Britain reached its highest value of about 5 per cent in the last few quarters of 1989. We also estimate the probability of a crash in the Irish housing market to have increased to around 2 per cent by the end of 1998.

Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs

We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with ‘deep’ habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.Exchange Rate Puzzles; Forward Foreign Exchange; Habit Persistence

Getting a Helping Hand: Parental Transfers and First-Time Homebuyers

A model that allows for inter vivos intergenerational transfers in a booming housing market is developed. The model is used to explain how transfers effect the first-time homebuyer’s consumption and housing decisions by alleviating borrowing constraints. The general implications of the model are tested using data from the leading Irish mortgage provider. We find that private transfers are targeted towards homebuyers that are liquidity constrained.Transfers, Housing, Borrowing Constraint

Solving Exchange Rate Puzzles with neither Sticky Prices nor Trade Costs

We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with deep? habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.Exchange Rate Puzzles; Forward Foreign Exchange; Habit Persistence

For Rich or for Poor: When does Uncovered Interest Parity Hold?

We present a model that simultaneously explains why uncovered interest parity holds for some pairs of countries and not for others. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with ‘deep’ habits along the lines of the work of Ravn, Schmitt-Grohe and Uribe. By deep habits, we mean habits defined over goods rather than countries. The negative slope in the Fama regression arises when monetary instability is low and the precautionary savings motive dominates the intertemporal substitution motive. When monetary instability is high, the Fama slope is positive in line with uncovered interest parity. The model is simulated using the artificial economy methodology for 34 currencies against the US dollar. We conclude that, given the predominance of precautionary savings, the degree of monetary instability explains whether or not uncovered interest parity holds.Monetary instability; Uncovered interest parity; Forward biasedness puzzle; Carry trade; Habit persistence

Efficient allocation of land in a decoupled world

In this paper we investigate whether specialist producers of Irish cereals were allocating land efficiently in a mean-variance sense during the 1993-2002 time period. We then expand the model to examine the potential implications on the land allocation decision of the 2002 EU Commission's proposed mid-term reform of the Common Agricultural Policy. One-year ahead rolling forecasts of conditional moments of Irish cereal prices are generated using a multivariate autoregressive conditional heteroscedastic model. These forecasts are used to construct expected efficient frontiers for each year between 1993 and 2002. Our findings indicate that in every year specialist producers of Irish cereals were allocating land efficiently ex ante. We also show that the proposed introduction of decoupled payments will change the efficient frontier facing Irish cereal producers and probably induce producers to allocate more land to the higher returning yet relatively riskier wheat crop

Getting a Helping Hand: Parental Transfers and First-Time Homebuyers

A model that allows for inter vivos intergenerational transfers in a booming housing market is developed. The model is used to explain how transfers effect the first-time homebuyer's consumption and housing decisions by alleviating borrowing constraints. The general implications of the model are tested using data from the leading Irish mortgage provider. We find that private transfers are targeted towards homebuyers that are liquidity constrained

Solving Exchange Rates Puzzles with neither Sticky Prices nor Trade Costs

We present a simple framework in which both the exchange rates disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habit persistence is modeled using Campbell Cochrane preferences with �deep� habits. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese-Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression

Trees or Trotters?

A real options model is used to explain why Irish farmers have been slow to switch from traditional farming to forestry despite numerous government incentives. In the theoretical model our results depend on profits from traditional farming relative to forestry. Under reasonable parameterisations of this profit ratio we show that it is optimal for farmers to stay in farming for six years before switching to forestry. In a subsequent empirical dynamic panel data model, the error correction model also predicts that it would take about six years for a change in the profit ratio to fully affect the number of hectares planted

A Camera Phone Localised Surface Plasmon Biosensing Platform Towards Low-Cost Label-Free Diagnostic Testing

Developmental work towards a camera phone diagnostic platform applying localized surface plasmon resonance (LSPR) labelfree sensing is presented. The application of spherical gold nanoparticles and nanorods are considered and assessed against ease of application, sensitivity, and practicality for a sensor for the detection of CCL2 (chemokine ligand 2). The sensitivity of the platform is compared with that of a commercial UV/Vis spectrometer. The sensitivity of the camera phone platform is found to be 30% less than that of the commercial system for an equivalent incubation time, but approaches that of the commercial system as incubation time increases. This suggests that the application of LSPR sensing on a portable camera phone devices may be a highly effective label-free approach for point-of-care use as a low-cost diagnostic sensing tool in environments where dedicated equipment is not available