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Fads, Fundamentals and Farmland Prices: Reply to Comment

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  • Falk, Barry L.
  • Lee, Bong-Soo
  • Susmel, Rauli

Abstract

Falk has shown that there are large and systematic deviations of real farmland prices in Iowa from their fundamental values. Falk and Lee (FL) conclude that these deviations are more easily explainable in terms of fads rather than speculative bubbles. In his comment on FL, Roche argues that the reverse is true; i.e., the nonfundamental component of Iowa farmland prices behaves more like a stochastic bubble model than a fads model. His argument is based on a general regime-switching model, equations (2)-(4) in Roche, which embeds a fads model and a stochastic bubbles model as special cases. In this reply, we argue that the evidence Roche presents against the fads interpretation and in favor of the bubbles interpretation is not very compelling.

Suggested Citation

  • Falk, Barry L. & Lee, Bong-Soo & Susmel, Rauli, 2001. "Fads, Fundamentals and Farmland Prices: Reply to Comment," Staff General Research Papers Archive 10292, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10292
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