Many in the housing literature argue that house prices and income are cointegrated. I show that the data do not support this view. Standard tests using 27 years of national-level data do not find evidence of cointegration. However, standard tests for cointegration have low power, especially in small samples. I use panel-data tests for cointegration that are more powerful than their time-series counterparts to test for cointegration in a panel of 95 metro areas over 23 years. Using a bootstrap approach to allow for cross-correlations in city-level house-price shocks, I show that even these more powerful tests do not reject the hypothesis of no cointegration. Thus the error-correction specification for house prices and income commonly found in the literature may be inappropriate. Copyright 2006 American Real Estate and Urban Economics Association
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Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.
Volume (Year): 34 (2006) Issue (Month): 3 (09) Pages: 417-438 Download reference. The following formats are available: HTML,
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