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Spatial and Temporal Diffusion of House Prices in the UK

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  • Holly, Sean

    ()
    (University of Cambridge)

  • Pesaran, M. Hashem

    ()
    (University of Cambridge)

  • Yamagata, Takashi

    ()
    (University of York)

Abstract

This paper provides a method for the analysis of the spatial and temporal diffusion of shocks in a dynamic system. We use changes in real house prices within the UK economy at the level of regions to illustrate its use. Adjustment to shocks involves both a region specific and a spatial effect. Shocks to a dominant region – London – are propagated contemporaneously and spatially to other regions. They in turn impact on other regions with a delay. We allow for lagged effects to echo back to the dominant region. London in turn is influenced by international developments through its link to New York and other financial centers. It is shown that New York house prices have a direct effect on London house prices. We analyse the effect of shocks using generalised spatio-temporal impulse responses. These highlight the diffusion of shocks both over time (as with the conventional impulse responses) and over space.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4694.

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Length: 42 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published as 'The spatial and temporal diffusion of house prices in the UK ' in: Journal of Urban Economics, 2011, 69 (1), 2 - 23
Handle: RePEc:iza:izadps:dp4694

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Keywords: cross sectional dependence; spatial dependence; house prices;

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Citations

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Cited by:
  1. Arnab Bhattacharjee & Chris Jensen-Butler, 2011. "Estimation of the Spatial Weights Matrix under Structural Constraints," Dundee Discussion Papers in Economics, Economic Studies, University of Dundee 254, Economic Studies, University of Dundee.
  2. Pesaran, M.H. & Chudik, A., 2010. "Econometric Analysis of High Dimensional VARs Featuring a Dominant Unit," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1024, Faculty of Economics, University of Cambridge.
  3. Martín Saldías, 2011. "A Market-based Approach to Sector Risk Determinants and Transmission in the Euro Area," Working Papers, Banco de Portugal, Economics and Research Department w201130, Banco de Portugal, Economics and Research Department.
  4. Luisa Corrado & Bernard Fingleton, 2011. "Where is the economics in spatial econometrics?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 33581, London School of Economics and Political Science, LSE Library.
  5. Dreger, Christian & Kholodilin, Konstantin A., 2012. "An early warning system to predict the speculative house price bubbles," Economics Discussion Papers, Kiel Institute for the World Economy 2012-44, Kiel Institute for the World Economy.
  6. Bussière, M. & Chudik, A. & Mehl, A., 2011. "How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro's creation?," Working papers, Banque de France 336, Banque de France.
  7. Corrado, L. & Fingleton, B., 2011. "Where is the economics in spatial econometrics?," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-02, Scottish Institute for Research in Economics (SIRE).
  8. Bhattacharjee, Arnab & Jensen-Butler, Chris, 2011. "Estimation of the Spatial Weights Matrix under Structural Constraints," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-48, Scottish Institute for Research in Economics (SIRE).
  9. Christian Dreger & Konstantin A. Kholodilin, 2011. "An Early Warning System to Predict the House Price Bubbles," Discussion Papers of DIW Berlin 1142, DIW Berlin, German Institute for Economic Research.

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