Tuesday, September 23, 2008

Weird instruments: The rapture index

Today I start teaching econometrics. So what about starting a thread about weird instruments (like instruments for instrumental variable estimations, if you don’t know econometrics, never mind)? The coolest I have ever seen is the Rapture Index.

The rapture index measures the probability of rapture. The rapture is an event that will take place sometime in the near future. Jesus will come in the air, catch up the Church from the earth, and then return to Heaven with the Church. (details are here).

Apparently this (interacted with evangelical population) is a good instrument for housing prices: Crowe (2008) finds that in MSAs with a larger portion of the population belonging to Evangelical churches house prices tend to rise disproportionately when the "Rapture Index" rises. This index maps current events into a subjective probability of an imminent coming of a time of "extreme and terrible" events and as such is independent from denial rates at the MSA level. We can then use the interaction term of the share of Evangelicals in the MSA population and change in the Rapture index as an instrument for house price appreciation. The paper is here

But why should somebody who believes that the end of the world is approaching buy a house? I would rather follow this guy's advice.

BTW, I need to check if the LHC is affecting housing prices in Geneva.
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