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A Spatio-Temporal Model of House Prices in the US

Sean Holly (), M Pesaran () and Takashi Yamagata

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In this paper we model the dynamic adjustment of real house prices using data at the level of US States. We consider interactions between housing markets by examining the extent to which real house prices at the State level are driven by fundamentals such as real income, as well as by common shocks, and determine the speed of adjustment of house prices to macroeconomic and local disturbances. We take explicit account of both cross sectional dependence and heterogeneity. This allows us to find a cointegrating relationship between house prices and incomes and to identify a small role for real interest rates. Using this model we examine the role of spatial factors, in particular the effect of contiguous states by use of a weighting matrix. We are able to identify a significant spatial effect, even after controlling for State specific real incomes, and allowing for a number of unobserved common factors.

Keywords: House Price; Cross Sectional Dependence; Spatial Dependence (search for similar items in EconPapers)
JEL-codes: C21 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-geo, nep-mac and nep-ure
Date: 2006-09
Note: Ec
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Related works:
Journal Article: A spatio-temporal model of house prices in the USA (2010) Downloads
Working Paper: A Spatio-Temporal Model of House Prices in the US (2006) Downloads
Working Paper: A Spatio-Temporal Model of House Prices in the US (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0654

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