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The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence

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  • Kamhon Kan
  • Sunny Kai-sun Kwong
  • Charles Ka-yui Leung

Abstract

This paper investigates the dynamics of property prices and their interaction with output growth in a general equilibrium model. Closed form solutions and testable hypotheses are derived from a mildly restricted version of the model. The testable hypotheses are broadly supported empirically. In particular, (1) the volatility of commercial property prices is higher than that of residential property prices, (2) each of the lagged, contemporary, and forward commercial property prices is positively correlated with residential property prices, (3) the contemporaneous covariance between the two property prices is larger than the lagged covariance, and (4) output growth is positively correlated with both property prices. These results are consistent with simulations results that are based on a more general specification of the model.

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Bibliographic Info

Paper provided by Chinese University of Hong Kong, Department of Economics in its series Departmental Working Papers with number _147.

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Date of creation: Oct 2002
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Handle: RePEc:chk:cuhked:_147

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  1. Kamhon Kan & Sunny Kai-Sun Kwong & Charles Ka-Yui Leung, 2004. "The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 44(1), pages 95-123.
  2. Lau, Sau-Him Paul, 2002. "Further Inspection Of The Stochastic Growth Model By An Analytical Approach," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 6(05), pages 748-757, November.
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  9. Francois Ortalo-Magne & Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," Finance, EconWPA 9810004, EconWPA, revised 25 Oct 1998.
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  16. Kwong, Sunny Kai Sun & Leung, Charles Ka Yui, 2000. "Price Volatility of Commercial and Residential Property," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 20(1), pages 25-36, January.
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