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Unit Roots and Structural Change: An Application to US House-Price Indices

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Author Info

  • Giorgio Canarella

    ()
    (Department of Economics, University of Nevada, Las Vegas)

  • Stephen M. Miller

    ()
    (Department of Economics, University of Nevada, Las Vegas)

  • Stephen K. Pollard

    ()
    (Department of Economics, California State University, Los Angeles)

Abstract

This paper employs unit-root tests that allow for two endogenous breaks as suggested by Lumdaine and Papell (1997) and Lee and Strazicich (2003) to investigate the returns on the S&P/Case-Shiller Home Price Indices. The tests that assume structural stability provide no evidence against the unit-root hypothesis in all returns series. Conversely, the Lumdaine-Papell and Lee-Strazicich tests indicate that significant structural breaks exist. Only the Lee-Strazicich test, however, which incorporates structural changes under the null hypothesis, finds that the returns to houses exhibit trend stationarity with structural breaks, in most cases, rather than a random walk. Following Meen (1999), we also investigate the stationarity of the metropolitan house-price ratios. The findings of the Lumsdaine-Papell test provide no evidence against the unit-root hypothesis in all house-price ratio series. Conversely, the Lee-Strazicich test finds broken-trend stationarity of the metropolitan house-price ratios for Boston, Miami, and New York.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/1004.pdf
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Bibliographic Info

Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 1004.

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Length: 39 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:nlv:wpaper:1004

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Keywords: House-price indexes; Time-series properties; “Ripple” effects.;

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Citations

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Cited by:
  1. Aye, G.C. & Goswami, S. & Gupta, R., 2013. "Metropolitan House Prices In Regions of India: Do They Converge?," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 135-144.
  2. Montañés, Antonio & Olmos, Lorena, 2013. "Convergence in US house prices," MPRA Paper 48454, University Library of Munich, Germany.
  3. Francisca G-C Richter & Youngme Seo, 2011. "Inter-regional home price dynamics through the foreclosure crisis," Working Paper 1119, Federal Reserve Bank of Cleveland.
  4. Tsangyao Chang & Tsung-pao Wu & Rangan Gupta, 2013. "Are House Prices in South Africa Really Non-Stationary? Evidence from SPSM-Based Panel KSS Test with a Fourier Function," Working Papers 201324, University of Pretoria, Department of Economics.
  5. Goodness C. Aye & Samrat Goswami & Rangan Gupta, 2012. "Metropolitan House Prices In India: Do They Converge?," Working Papers 201220, University of Pretoria, Department of Economics.
  6. Christophe Andre & Luis A. Gil-Alana & Rangan Gupta, 2013. "Comovement in Euro Area Housing Prices: A Fractional Cointegration Approach," Working Papers 201359, University of Pretoria, Department of Economics.

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