1. Is There a Real Estate Bubble in the Czech Republic? Petr Zemčík MILANO, ERES 2010

2. Real Estate Price Indexes in Central and Eastern Europe YearBulgariaCREst.HungaryLatviaSR 199742 199850 199950 20008751 200189786888 2002898489909872 2003100 2004148116128109108115 2005202119167110137104 2006231130254109271121 2007298173280111150 2008373220259112

3. Real Estate Bubbles  Discrepancy between property prices and model implied prices reflecting fundamental factors.  Widely used models: - Supply-demand model. Gallin (2006), Mikhed and Zemčík (2009, JHE) -Present-value model. Rent is the only factor. Campbell and Shiller (1987), Wang (2000), Mikhed and Zemčík (2009, JREFE)

4. Panel data tests  Unit roots - Im, Pesaran, and Shin (2003), Pesaran (2007)  Regional correlation – Pesaran (2004)  Applications, US data – Malpezzi (1999), Gallin (2006), Mikhed and Zemčík (2009 JHE, JREFE)  Granger causality tests – Hurlin (2004), Hurlin and Venet (2004), Arellano and Bond (1991)

5. Present-value model

6. Econometric Methodology

7. Apartment prices, 335 regions, Czech Republic

8. Rents, 335 regions, Czech Republic

9. Price-to-rent ratios, 335 regions, Czech Republic

10. Apartment prices, 46 Prague districts

11. Rents, 46 Prague districts

12. Price-to-rent ratios, 46 Prague districts

13. Panel data unit root tests TestSpecificationPricesRentsP/R Prague CIPSInt., trend, CADF(0)-2.74**-2.11-2.00 CIPSInt., trend, CADF(1)-2.90***-3.09***-2.35 IPSInt., trend, ADF(1)1.00-2.66***-1.13 Czech Rep. CIPSNo int., no trend, CADF(0)-1.44*-0.92-1.07 CIPSNo int., no trend, CADF(1)-1.56**-0.83-1.12 CIPSInt., no trend, CADF(0)-2.61**-1.42 CIPSInt., no trend, CADF(1)-3.03***-2.03-1.56 CIPSInt., trend, CADF(0)-2.51-1.22-2.59 IPSInt., no trend, ADF(1)16.287.1214.41 IPSInt., trend, ADF(1)1.84-14.167.56

14. Results  Apartment prices both in the Czech Republic overall and in its capital are only slightly overvalued.  Changes in prices are helpful in predicting changes in rents and vice versa.  Application in countries with large rental markets: e.g. majority of original EU members plus CR and Poland